Exam 12: Non-Recognition Transactions

Fran owns a commercial office building with a fair market value of $850,000.She purchased the building as an investment for $815,000 in 2006.She has deducted $115,000 in depreciation.Fran trades the building for an apartment complex.The apartment complex has a value of $850,000,and the exchange qualifies for like-kind deferral treatment.What is Fran's recognized gain on the exchange?

Cindy exchanges investment real estate with Russell.Cindy purchased her realty two years ago for $280,000,and it is encumbered by a mortgage of $100,000 and has a fair market value of $320,000 when exchanged.Russell paid $80,000 cash for his property in 1999 and it is appraised at $150,000 on the day of the exchange.Russell assumes the debt on his new land and pays Cindy enough in cash to balance the exchange.What is Cindy's recognized gain (loss)on the exchange?

Compare the deferral of recognition of losses resulting from an involuntary conversion with the deferrals for like-kind exchanges.

Which of the following qualify as a like-kind exchange? -A personal residence for a vacation home.

Taxpayers are allowed to structure transactions through third parties that qualify as exchanges if they meet certain time requirements for identifying properties and closing the transaction.

Which of the following qualify as a like-kind exchange? -Office building for office equipment.

For related parties to qualify for a like-kind exchange,the property received must be held for six months.

Benito owns an office building he purchased five years ago at a cost of $600,000.The property is currently worth $800,000,has an adjusted basis of $300,000 and is encumbered by a $400,000 mortgage. Mitch owns an apartment complex he purchased three years ago at a cost of $600,000.The property is currently worth $750,000,has an adjusted basis of $500,000 and is encumbered by a $325,000 mortgage. Benito and Mitch would like to exchange the properties and their respective mortgages.Answer the following questions regarding the exchange. a.Any boot is to be paid in cash. Who must pay the boot and how much must be paid? b.Does Benito have to recognize any gain on the exchange? If so, indicate the amount of gain to be recognized and why it must be recognized.

Which of the following qualify as replacement property under the involuntary conversion rules? I.Smooth Yogurt Company's warehouse for storing its yogurt curds is condemned by the port authority.The warehouse will be replaced with a new office building in a neighboring community. II.Smooth Yogurt Company's other warehouse,which was fully leased to another company,is destroyed by a tornado.The warehouse will be replaced with a rental office building adjacent to the company's new office building and will be leased to various tenants. ​

Wendell owns 115 acres of land with a fair market value of $57,000.He purchased the land as an investment for $35,000 in 1993.Wendell trades the land for a 122-acre parcel adjacent to other property he owns.The 122 acres has a value of $57,000,and the exchange qualifies for like-kind deferral treatment.What is Wendell's recognized gain on the exchange?

Gain deferral is fundamental to the nonrecognition transactions.In which of the following is gain deferral mandatory? I.Involuntary conversion of business real estate. II.Like-kind exchange of business real estate. ​

If related parties complete a qualified like-kind exchange,how long must the parties wait before disposing of the property exchanged to insure that any realized gain on the transfer is not recognized?

Match each statement with the correct term below. -Wherewithal-to-pay

Which of the following is/are correct concerning a principal residence? I.The maximum amount of gain a single taxpayer can exclude on the sale of a principal residence is $500,000. II.To qualify for a $250,000 exclusion,a single taxpayer must have owned and used the property as a principal residence for at least 2 of the previous 5 years. ​

Roscoe receives real estate appraised at $200,000 and cash of $10,000 from Cathy in exchange for Roscoe's investment realty with a basis of $170,000.What is his basis in the new real estate?

Mavis is a schoolteacher with an annual salary of $28,000.Last year she sold a substantial block of securities that she had inherited from her grandmother several years before.She used the proceeds to buy an apartment building in a neighboring community.She realized a $15,000 capital loss on the sale.She carries over $12,000 of the capital loss to the current year.During the current year,a fire destroys the apartment building when its adjusted basis is $100,000.Mavis receives an insurance check for $110,000 and immediately invests it in another apartment building.Advise Mavis how she should deal with these situations for the current tax year.

Carrie owns a business building with an adjusted basis of $95,000 and an appraised fair market value of $98,000.The city of Millerville condemns the property for a new highway.The condemnation award is $98,000.Carrie invests $90,000 of the proceeds into a new building on the other side of the city.What is the gain or loss that Carrie must recognize due to the transactions?

Which of the following is/are correct regarding the sale of a principal residence? I.A taxpayer who is single and fails to meet the ownership or use test due to change in employment is entitled to a pro rata share of the $250,000 exclusion. II.A single taxpayer can exclude up to $250,000 of the gain on the sale of a vacation home. ​

Which of the following qualify as a like-kind exchange? -Office copier for an office fax machine.

Match each statement with the correct term below. -Involuntary conversion