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. ​

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?

Discuss the concepts underlying the determination of the basis of property received in a nontaxable exchange.

Violet exchanges investment real estate with Russell. Violet'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 Violet enough in cash to balance the exchange. What is Russell's recognized gain (loss) on the exchange?

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

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 2017, Carmen, who is single, is transferred to Dallas. She had purchased a new home in June 2018 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.?

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?

Robbie and Mike exchange rental houses in a qualified like-kind exchange. Robbie's old rental house, which originally cost $142,000, has an adjusted basis of $126,000. His rental house is worth $132,000. Since the rental house Mike is trading is worth only $127,000 (Mike's basis is $118,000), Mike will even up the exchange by giving Robbie $5,000 in cash. a.What is Robbie's realized gain (loss) on the rental house? b.What is Robbie's recognized gain (loss) on the rental house? c.What is the character of Robbie's gain or loss on the rental house? d.What is Robbie's basis in his new rental house?

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. ​

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.

Grant exchanges an old pizza oven from his business for a new oven. In addition to the old oven, which has a basis of $10,000, Grant pays $10,000 cash. The new oven is valued at $22,000. What is Grant's recognized gain or loss due on this transaction?

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 $6,000. II.Norman recognizes a loss of $4,000 on the exchange. ​

Which of the following qualify as replacement property under the involuntary conversion rules? I.Mayfield Ice Cream Company's production plant is destroyed by a hurricane. The insurance proceeds are used to replace the plant with a refrigerated storage container. II.Mayfield Ice Cream Company's production plant is destroyed by a fire. They sign a five year lease for a replacement production facility, and the insurance proceeds are then used to buy an office building ​

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?

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 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. ​

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?

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

Nancy acquired office equipment for her business three years ago at a cost of $15,000. During the current year, she exchanges the equipment for different equipment with a fair market value of $9,000. MACRS depreciation on the original equipment was $9,828. What is the amount and character of the gain recognized?