Exam 15: Property Transactions: Nontaxable Exchanges

Joyce,a farmer,has the following events occur during the tax year.Which of the events qualify as an involuntary conversion under § 1033 (nonrecognition of gain from an involuntary conversion)?

Wyatt sells his principal residence in December 2014 and qualifies for the § 121 exclusion.He sells another principal residence in November 2015.Under no circumstance can Wyatt qualify for the § 121 exclusion on the sale of the second residence.

Discuss the treatment of losses from involuntary conversions.

Under what circumstances may a partial § 121 exclusion be available even though the taxpayer has used the § 121 exclusion within the two-year period preceding the sale of the current residence?

After 5 years of marriage,Dave and Janet decided to get a divorce.As part of the divorce settlement,Janet transfers to Dave the house she purchased prior to their marriage.Janet's adjusted basis for the house is $230,000 and the fair market value is $410,000 on the date of the transfer.What are the tax consequences to Janet and to Dave as a result of the transfer?

Which,if any,of the following exchanges qualifies for nonrecognition treatment as a § 1031 like-kind exchange?

Livestock of different sexes can qualify for like-kind exchange treatment if the livestock has been held for over 24 months.

Under the taxpayer­use test for a § 1033 involuntary conversion,the taxpayer has less flexibility in qualifying replacement property than under the functional-use test.

Jared,a fiscal year taxpayer with an August 31st year-end,owns an office building (adjusted basis of $800,000)that was destroyed by fire on December 24,2014.If the insurance settlement was $950,000 (received March 1,2015),what is the latest date that Jared can replace the office building in order to qualify for § 1033 nonrecognition of gain?

Jake exchanges an airplane used in his business for a smaller airplane to be used in his business.His adjusted basis for the airplane is $325,000 and the fair market value is $310,000.The fair market value of the smaller airplane is $300,000.In addition,Jake receives cash of $10,000.Calculate Jake's realized and recognized gain or loss and his adjusted basis for the assets received.

Distinguish between a direct involuntary conversion and an indirect involuntary conversion.

If the taxpayer qualifies under § 1033 (nonrecognition of gain from an involuntary conversion),makes the appropriate election,and the amount reinvested in replacement property is less than the amount realized,realized gain is:

Moss exchanges a warehouse for a building he will use as an office building.The adjusted basis of the warehouse is $600,000 and the fair market value of the office building is $350,000.In addition,Moss receives cash of $150,000.What is the recognized gain or loss and the basis of the office building?

If boot is received in a § 1031 like­kind exchange that results in some of the realized gain being recognized,the holding period for both the like-kind property and the boot received begins on the date of the exchange.

Use the following data to determine the sales price of Etta's principal residence and the realized gain.She is not married.The sale of the old residence qualifies for the § 121 exclusion. Selling expenses \ 45,000 Recognized gain 180,000 Cost of new residence 760,000 Adjusted basis of old residence 225,000 \S121 exclusion 250,000

If boot is received in a § 1031 like­kind exchange,the recognized gain cannot exceed the realized gain.

Kate exchanges land held as an investment for land and a building owned by Clark,to be used in her business.If Clark is Kate's father,her realized gain of $150,000 must be recognized because they are related parties.

Melvin receives stock as a gift from his uncle.No gift tax is paid.The adjusted basis of the stock is $30,000 and the fair market value is $38,000.Melvin trades the stock for bonds with a fair market value of $35,000 and $3,000 cash.What is his recognized gain and the basis for the bonds?

Liz,age 55,sells her principal residence for $600,000.She purchased it twenty-two years ago for $175,000.Selling expenses are $30,000 and repair expenses to get the house in a marketable condition to sell are $15,000.Liz's objective is to minimize the taxes she must pay associated with the sale.Calculate her recognized gain.

Carlos,who is single,sells his personal residence on November 5,2014,for $400,000.His adjusted basis was $125,000.He pays realtor's commissions of $20,000.He owned and occupied the residence for 12 years.Having decided that he no longer wants the burdens of home ownership,he invests the sales proceeds in a mutual fund and enters into a 1-year lease on an apartment.The detriments of renting,including a crying child next door,cause Carlos to rethink his decision.Therefore,he purchases another residence on November 6,2015,for $275,000.Is Carlos eligible for exclusion of gain treatment under § 121 (exclusion of gain on sale of principal residence)? Calculate Carlos's recognized gain and his basis for the new residence.