Exam 15: Property Transactions: Nontaxable Exchanges

An involuntary conversion results from the destruction (complete or partial),theft,seizure,requisition or condemnation,or the sale or exchange under threat or imminence of requisition or condemnation of the taxpayer's property.

If a taxpayer reinvests the net proceeds (amount received - related expenses)received in an involuntary conversion in qualifying replacement property within the statutory time period,it is possible to defer the recognition of the realized gain.

Carl sells his principal residence,which has an adjusted basis of $150,000 for $200,000.He incurs selling expenses of $20,000 and legal fees of $2,000.He had purchased another residence one month prior to the sale for $380,000.What is the recognized gain or loss and the basis of the replacement residence if the taxpayer elects to forgo the § 121 exclusion (exclusion of gain on sale of principal residence)?

Owen and Polly have been married for five years.Owen sells investment property to Polly for a realized gain of $140,000.Owen's gain of $140,000 is not recognized and Polly's basis for the property she purchased is her cost.

What types of exchanges of insurance contracts are eligible for nonrecognition treatment under § 1035?

In determining the basis of like-kind property received,postponed losses are:

Evelyn,a calendar year taxpayer,lists her principal residence with a realtor on February 7,2014,enters into a contract to sell on July 12,2014,and sells (i.e. ,the closing date)the residence on August 1,2014.The realized gain on the sale is $225,000.Which date is the appropriate ending date in determining if the residence has been owned and used by the Evelyn as the principal residence for at least two years during the prior five-year period?

Leonore exchanges 5,000 shares of Pelican,Inc. ,stock for 2,000 shares of Blue Heron,Inc. ,stock.Leonore's adjusted basis for the Pelican stock is $300,000 and the fair market value of the Blue Heron stock is $350,000.Leonore's recognized gain is $0 and her adjusted basis for the Blue Heron stock is $300,000.

If the recognized gain on an involuntary conversion equals the realized gain because of a reinvestment deficiency,the basis of the replacement property will be more than its cost (cost plus realized gain).

An exchange of two items of personal property (personalty)that belong to different general business asset classes qualifies for nonrecognition under § 1031 as long as both properties are used in the taxpayer's trade or business.

What requirements must be satisfied for a delayed swap to qualify for § 1031 like­kind exchange treatment?

The basis of boot received in a like-kind exchange is its fair market value,unless the realized gain is a smaller amount.

The holding period of replacement property where the election to postpone gain is made includes the holding period of the involuntarily converted property.

Lily exchanges a building she uses in her rental business for a building owned by Kendall,which she will use in her rental business.The adjusted basis of Lily's building is $120,000 and the fair market value is $170,000.Which of the following statements is correct?

Under what circumstance is there recognition of some or all of the realized gain associated with the giving of boot by the taxpayer in a like-kind exchange?

Which of the following statements is correct for a § 1033 involuntary conversion of an office building which is destroyed by fire?

A taxpayer whose principal residence is destroyed in a fire can use both the § 121 (sale of residence gain exclusion)and the § 1033 (involuntary conversion postponement of gain)provisions.

Abby exchanges an SUV that she has held for personal use plus $24,000 for a new SUV which she will use exclusively in her sole proprietorship business.This exchange qualifies for nontaxable exchange treatment.

The maximum amount of the § 121 gain exclusion on sale of a principal residence is $250,000 for a single individual and $500,000 for a married couple.

Katrina,age 58,rented (as a tenant)the house that was her principal residence from January 1,2014 through December 31,2015.She purchased the house on January 1,2016,for $150,000 and continued to occupy it through June 30,2017.She leased it to a tenant from July 1,2017,through December 31,2018.On January 1,2019,she sells the house for $350,000.She incurs a realtor's commission of $20,000.Calculate her recognized gain if her objective is to minimize the recognition of gain and she does not intend to acquire another residence.