Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

The basis of replacement property in a nonrecognition transaction is the adjusted basis of the property received less any deferred gain.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

In each of the following cases,determine the amount of realized gain or loss and the recognized gain or loss:
a.Silvia sells her house for $100,000 and she pays $8,000 in commissions on the sale.She paid $110,000 for the house 2 years earlier.
 
b.In July 2012,Carmen,who is single,is transferred to Dallas.She had purchased a new home in June 2013 for $130,000.Carmen sells the house for $165,000 and pays a commission of $10,000 on the sale.
 
c.Conrad is single and sells his principal residence for $350,000.He pays selling expenses of $20,000.Conrad purchased the house for $65,000 in 1986.
c.Conrad is single and sells his principal residence for $350,000. He pays selling expenses of $20,000. Conrad purchased the house for $65,000 in 1986.

Accepted Answer

a.Silvia has realized a loss of $12,000

Question 5

Iris' personal residence,located in a plush suburban area,is condemned to facilitate the construction of a new freeway artery.Iris receives a condemnation award of $1,000,000.She uses the award to purchase a new residence for $1,150,000.The adjusted basis of the former residence was $1,100,000 at the date of the condemnation.Determine Iris's recognized gain or loss and the basis in the new residence.Discuss in terms of the concepts of taxation how you arrived at your answers.

Accepted Answer

Iris' realized loss of $100,000 ($1,000,

Question 6

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

Accepted Answer

A) Losses are never deferred. 
B) Can be within the same NAICS Code. 
C) Not considered like-kind property. 
D) A taxpayer can have only one at a time. 
E) The maximum amount that can be recognized on a like-kind exchange.
F)This type of exchange must be completed within 180 days of first property transfer.
G)The concept upon which the ability to defer gains on certain nontaxable transactions relies. 
A) Losses are never deferred. 
B) Can be within the same NAICS Code. 
C) Not considered like-kind property. 
D) A taxpayer can have only one at a time. 
E) The maximum amount that can be recognized on a like-kind exchange.
F)This type of exchange must be completed within 180 days of first property transfer.
G)The concept upon which the ability to defer gains on certain nontaxable transactions relies.

Question 7

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.

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 8

Match each statement with the correct term below.
-Third-party exchange

Accepted Answer

A) Losses are never deferred. 
B) Can be within the same NAICS Code. 
C) Not considered like-kind property. 
D) A taxpayer can have only one at a time. 
E) The maximum amount that can be recognized on a like-kind exchange.
F)This type of exchange must be completed within 180 days of first property transfer.
G)The concept upon which the ability to defer gains on certain nontaxable transactions relies. 
A) Losses are never deferred. 
B) Can be within the same NAICS Code. 
C) Not considered like-kind property. 
D) A taxpayer can have only one at a time. 
E) The maximum amount that can be recognized on a like-kind exchange.
F)This type of exchange must be completed within 180 days of first property transfer.
G)The concept upon which the ability to defer gains on certain nontaxable transactions relies.

Question 9

Which of the following qualify as a like-kind exchange?
-Land held as an investment for an office building and land used in a business.

Accepted Answer

A) qualifies as a like-kind exchange 
B) does not qualify as a like-kind exchange 
A) qualifies as a like-kind exchange 
B) does not qualify as a like-kind exchange

Question 10

Tony and Faith sell their home for $495,000,incurring selling expenses of $25,000.They purchased the residence for $85,000 and made capital improvements totaling $20,000 during the 20 years they lived there.What is their realized gain and recognized gain on the sale?
$\begin{array}{cc}
\text { Realized } & \text { Recognized } \
a.\$ 365,000 & \$-0- \
b.\$ 365,000 & \$ 115,000 \
c.\$ 385,000 & \$ 135,000 \
d.\$ 385,000 & \$-0- \
e.\$ 390,000 & \$-0-
\end{array}$

Accepted Answer

The answer of Tony and Faith sell their home for...

Question 11

Nancy purchased her houseboat six years ago for $35,000.She has lived in the houseboat since she purchased it.A friend has offered $62,000 for the houseboat.If she sells it,she will be able to exclude the gain.

Accepted Answer

A) True 
 B)False

Question 12

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?

Accepted Answer

A) $ - 0 - 
B) $ 35,000 
C) $115,000 
D) $150,000 
E) $850,000 
A) $ - 0 - 
B) $ 35,000 
C) $115,000 
D) $150,000 
E) $850,000

Question 13

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.

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 14

Norm acquired office equipment for his business in 2011 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?

Accepted Answer

A) No gain or loss. 
B) $1,753 Section 1231 gain. 
C) $1,753 Section 1245 ordinary income. 
D) $4,753 Section 1231 gain. 
E) $4,753 section 1245 ordinary income, and $3,000 Section 1231 loss. 
A) No gain or loss. 
B) $1,753 Section 1231 gain. 
C) $1,753 Section 1245 ordinary income. 
D) $4,753 Section 1231 gain. 
E) $4,753 section 1245 ordinary income, and $3,000 Section 1231 loss.

Question 15

Under the like-kind exchange rules,when like-kind property is traded for like-kind property,a loss on a trade-in is:

Accepted Answer

A) recognized and treated as a capital loss. 
B) recognized and treated as an ordinary loss. 
C) not recognized and increases the basis of the replacement property. 
D) not recognized and decreases the basis of the replacement property. 
E) none of the above. 
A) recognized and treated as a capital loss. 
B) recognized and treated as an ordinary loss. 
C) not recognized and increases the basis of the replacement property. 
D) not recognized and decreases the basis of the replacement property. 
E) none of the above.

Question 16

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?

Accepted Answer

A) $ 80,000 
B) $180,000 
C) $250,000 
D) $320,000 
E) None of the above 
A) $ 80,000 
B) $180,000 
C) $250,000 
D) $320,000 
E) None of the above

Question 17

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

Accepted Answer

A) Losses are never deferred. 
B) Can be within the same NAICS Code. 
C) Not considered like-kind property. 
D) A taxpayer can have only one at a time. 
E) The maximum amount that can be recognized on a like-kind exchange.
F)This type of exchange must be completed within 180 days of first property transfer.
G)The concept upon which the ability to defer gains on certain nontaxable transactions relies. 
A) Losses are never deferred. 
B) Can be within the same NAICS Code. 
C) Not considered like-kind property. 
D) A taxpayer can have only one at a time. 
E) The maximum amount that can be recognized on a like-kind exchange.
F)This type of exchange must be completed within 180 days of first property transfer.
G)The concept upon which the ability to defer gains on certain nontaxable transactions relies.

Question 18

Robbie and Mike exchange machinery in a qualified like-kind exchange.Robbie's old machine,which originally cost $42,000,has an adjusted basis of $26,000.His old machine is worth $32,000.Since the machine Mike is trading is worth only $27,000 (Mike's basis is $18,000),Mike will even up the exchange by giving Robbie $5,000 in cash.
a.What is Robbie's realized gain (loss)on the machine?
 
b.What is Robbie's recognized gain (loss)on the machine?
 
c.What is the character of Robbie's gain or loss on the machine?
 
d.What is Robbie's basis in his new machine?

Accepted Answer

a.Robbie's amount realized is $32,000.It

Question 19

Charlotte purchases a residence for $105,000 on April 13,2005.On July 1,2011,she marries Howard and they use Charlotte's house as their principal residence.On May 12,2013,they sell their home for $390,000,incurring $20,000 of selling expenses and purchase another residence costing $350,000.What is their realized and recognized gain?
$\begin{array}{cc}
\text { Realized } & \text { Recognized } \
a.\$ 265,000 & \$-0-\
b.\$ 265,000 & \$ 15,000  \
c.\$ 285,000 & \$ 65,000  \
d.\$ 265,000 & \$ 45,000  \
e.\$ 285,000 & \$-0-
\end{array}$

Accepted Answer

The answer of Charlotte purchases a residence for $105,000 on...

Question 20

A gain on a like-kind exchange is always recognized to the extent of any boot received.

Accepted Answer

A) True 
 B)False

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

The basis of replacement property in a nonrecognition transaction is the adjusted basis of the property received less any deferred gain.

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

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

Match each statement with the correct term below. -Third-party exchange

Which of the following qualify as a like-kind exchange? -Land held as an investment for an office building and land used in a business.

Nancy purchased her houseboat six years ago for $35,000.She has lived in the houseboat since she purchased it.A friend has offered $62,000 for the houseboat.If she sells it,she will be able to exclude the gain.

Under the like-kind exchange rules,when like-kind property is traded for like-kind property,a loss on a trade-in is:

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

A gain on a like-kind exchange is always recognized to the extent of any boot received.

Federal Income Taxation - an Overview

Income Tax Concepts

Income Sources

Income Exclusions

Introduction to Business Expenses

Business Expenses

Losses: Deductions and Limitations

Taxation of Individuals

Acquisitions of Property

Cost Recovery on Property: Depreciation, depletion, and Amortization

Property Dispositions

Choice of Business Entity - General Tax and Nontax Factorsformation

Choice of Business Entity - Operations and Distributions

Choice of Business Entity - Other Considerations

Tax Research

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Exam 12: Nonrecognition Transactions

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

The basis of replacement property in a nonrecognition transaction is the adjusted basis of the property received less any deferred gain.

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

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

Match each statement with the correct term below. -Third-party exchange

Which of the following qualify as a like-kind exchange? -Land held as an investment for an office building and land used in a business.

Nancy purchased her houseboat six years ago for $35,000.She has lived in the houseboat since she purchased it.A friend has offered $62,000 for the houseboat.If she sells it,she will be able to exclude the gain.

Under the like-kind exchange rules,when like-kind property is traded for like-kind property,a loss on a trade-in is:

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

A gain on a like-kind exchange is always recognized to the extent of any boot received.

Federal Income Taxation - an Overview

Income Tax Concepts

Income Sources

Income Exclusions

Introduction to Business Expenses

Business Expenses

Losses: Deductions and Limitations

Taxation of Individuals

Acquisitions of Property

Cost Recovery on Property: Depreciation, depletion, and Amortization

Property Dispositions

Choice of Business Entity - General Tax and Nontax Factorsformation

Choice of Business Entity - Operations and Distributions

Choice of Business Entity - Other Considerations

Tax Research

Filters