Exam 12: Non-Recognition Transactions

Rationale for nonrecognition of property transactions exists because of which concept(s)of taxation? I.Wherewithal-to-Pay Concept. II.Constructive receipt Doctrine. ​

Norm acquired office equipment for his business at a cost of $10,000.After two years of use,Norm exchanges the equipment for different equipment with a fair market value of $7,000.MACRS depreciation on the original equipment was $4,753 The exchange qualifies as a like-kind exchange.Immediately after the exchange Norm sells the new equipment for $7,000 cash.What is the amount and character of the gain recognized?

Which of the following qualify as a like-kind exchange? -Computer for delivery truck.

Match each statement with the correct term below. -Like-kind property

Which of the following qualify as a like-kind exchange? -Farm land for an office building and its land.

Classification of a nonrecognition transaction as a continuation of an investment requires a qualified replacement asset.

Belinda exchanges investment real estate with Russell.Belinda's adjusted basis in her two-year old property is $280,000.The property is encumbered by a mortgage of $100,000 and has a fair market value of $320,000 when exchanged.Russell assumes that debt.Russell paid $80,000 cash for his property in 1999 and it is appraised at $150,000 on the day of the exchange.Russell pays Belinda enough in cash to balance the exchange.What is Belinda's basis in the new land?

Jason and Mark exchange equipment each use in their business.In the trade,Jason receives Mark's equipment that is worth $20,000.Mark also assumes the $10,000 loan Jason had on the equipment.Jason purchased his equipment for $25,000 and had taken $12,000 of depreciation on the equipment up to the date of the exchange.Mark's adjusted basis in his equipment is $16,000 on the date of the exchange. a.What is Jason's realized gain on the exchange? b.What are the amount and the character of the gain Jason must recognize on the exchange? c.What is Jason's basis in the equipment acquired in the exchange?

Drake and Cynthia sell their home for $475,000,incurring selling expenses of $20,000.They had purchased the residence in 1998 for $105,000 and made capital improvements totaling $25,000.They buy a new residence for $210,000.What is their realized gain and recognized gain on the sale? What is their basis in the new house?

A fire destroyed Josh's Scuba Shop.The business had an adjusted basis of $500,000 and a fair market value of $600,000.Josh received $550,000 from the insurance company and used the cash to go to HawaiI.I.Josh has a realized gain of $100,000. II)Josh has a recognized gain of $50,000. ​

Natural Power Corporation owns a warehouse with an adjusted basis of $195,000 and an appraised fair market value of $185,000.The city of Springfield condemns the property for a new airport.The condemnation award is $185,000.Natural Power invests the $185,000 in a new warehouse on the other side of the city.What is the gain or loss that Natural Power Corporation must recognize due to the transactions?

Norman exchanges a machine he uses in his pool construction business for a used machine worth $6,000 to use in the same business.He purchased the machine 3 years ago for $22,000 and has taken depreciation of $9,000 on the machine.In the exchange,Norman also receives $3,000 of cash.As a result of the exchange, I.Norman's basis in the acquired machine is $10,000. II.Norman recognizes a loss of $3,000 on the exchange. ​

Which of the following can be income deferral transactions? I.Sale of municipal bonds. II.Involuntary conversions of property. ​

Commonalties of nonrecognition transactions include that I.gains on all transactions must be recognized when the taxpayer has the wherewithal-to-pay. II.tax attributes carryover from the original asset to the replacement asset. ​

A fire destroyed Jimmy's Teeshirt Shop.The business had an adjusted basis of $500,000 and a fair market value of $600,000 before the fire.Jimmy received $550,000 from the insurance company and opened a new Teeshirt Shop with the proceeds. I.Jimmy has a realized gain of $50,000. II.Jimmy has a recognized gain of $50,000. ​

Which of the following qualify as a like-kind exchange? -Coke-Cola bonds for General Foods bonds.

Dominic and Lois sell their home for $775,000,incurring selling expenses of $40,000.They had purchased the residence in 1990 for $185,000 and made capital improvements totaling $45,000.They buy a new residence for $310,000.What is their realized gain and recognized gain on the sale? What is their basis in the new house?

Rosilyn trades her old business-use luxury car with an adjusted basis of $13,000 and an outstanding loan liability balance of $2,000 for a new business-use economy car valued at $9,000 plus $3,000 cash from Bob's Auto Sales and Loan Company.Bob assumes Rosilyn's loan balance.What is Rosilyn's amount realized on the transaction?

Karen owns a commercial office building with a fair market value of $140,000.She purchased the building as an investment for $102,000 in 2003.She has claimed $18,000 in depreciation deductions.Karen trades the building for an apartment complex.The apartment complex has a value of $140,000,and the exchange qualifies for like-kind deferral treatment.What is Karen's basis in the apartment complex?

Lindsey exchanges investment real estate parcels with Donna.Her adjusted basis in the property is $400,000,and it is encumbered by a mortgage liability of $200,000.Donna assumes the mortgage.Donna's property is appraised at $1,000,000 and is subject to a $100,000 liability.Lindsey assumes the liability.If no cash is exchanged,what is the amount of gain recognized by Lindsey?