Exam 12: Non-Recognition Transactions

A flood destroys Franklin's manufacturing facility.The building had a basis of $600,000 when destroyed.Franklin's insurance company reimburses him $850,000,the appraised replacement cost of the building.Franklin purchases a qualified replacement facility for $1,100,000.Discuss the tax effects of these transactions applying the concepts of taxation that drive your answers.

Rebecca trades in her four-wheel drive truck for a new one.Rebecca's truck cost $20,000 and has an $8,000 basis on the date of the trade-in.The price of the new truck is $27,000 and the dealer gives Rebecca a $10,000 trade in allowance on her old truck.She uses the trucks in her business.What is Rebecca's basis in the new truck?

Commonalties of nonrecognition transactions include that I.deferring a loss is mandatory on like-kind exchanges. II.deferring a loss is mandatory on involuntary conversions. ​

Which of the following qualify as a like-kind exchange? -Land in London,England for land in San Francisco,California.

Match each statement with the correct term below. -Principal residence

Match each statement with the correct term below. -Boot

Sarah exchanges investment real estate with Russell.Sarah'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 Sarah enough in cash to balance the exchange.What is Russell's basis in the new land?

The mechanism for effecting a deferral in a nonrecognition transaction is an adjustment of the replacement asset's basis.

Which of the following qualify as a like-kind exchange? -Inventory for office supplies.

The general mechanism used to defer gains and losses from a transaction includes certain adjustments to the basis of the replacement property.These adjustments include I.subtracting deferred losses. II.adding deferred gains. ​

Willie 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.Willie 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 Willie's basis in the new parcel of land?

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 had 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 realizes a loss of $4,000 on the exchange. II.Norman's basis in the acquired machine is $13,000. ​