Question 1

An involuntary conversion occurs whenever a loss (but not a gain) is realized from a transaction that occurs against the taxpayer's will.

Accepted Answer

A) True 
 B)False

Question 2

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

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 3

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?

Accepted Answer

A) $8,000 
B) $18,000 
C) $25,000 
D) $27,000 
E) $29,000 
A) $8,000 
B) $18,000 
C) $25,000 
D) $27,000 
E) $29,000

Question 4

Which of the following qualify as a like-kind exchange?
-Personal residence for an apartment building.

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 5

Grant exchanges an old pizza oven from his business for a new oven. In addition to the old oven, which had a basis of $10,000, Grant pays $10,000. The new oven is valued at $22,000. What is Grant's basis in the new oven?

Accepted Answer

A) $12,000 
B) $16,000 
C) $20,000 
D) $22,000 
E) $32,000 
A) $12,000 
B) $16,000 
C) $20,000 
D) $22,000 
E) $32,000

Question 6

Randy 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. Randy 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 Randy's realized gain on the exchange?

Accepted Answer

A) $- 0 - 
B) $22,000 
C) $35,000 
D) $57,000 
E) $79,000 
A) $- 0 - 
B) $22,000 
C) $35,000 
D) $57,000 
E) $79,000

Question 7

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?

Accepted Answer

A) $160,000 
B) $170,000 
C) $180,000 
D) $200,000 
E) $210,000 
A) $160,000 
B) $170,000 
C) $180,000 
D) $200,000 
E) $210,000

Question 8

Which of the following qualify as a like-kind exchange?
-A business use automobile for a personal use automobile.

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 9

The holding period of an asset received in a like-kind exchange includes the holding period of the transferred asset.

Accepted Answer

A) True 
 B)False

Question 10

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.
​

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 11

Which of the following qualify as a like-kind exchange?
-Microsoft common stock for Merrill Lynch common stock.

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 12

Which of the following is/are correct regarding involuntary conversions?
I.Gains may be deferred if the property involuntarily converted is replaced with property that is similar to or related in service or use to the converted property.
II.Deferral of gains is elective only if direct conversion is made into similar property.
​

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 13

Which of the following statements is/are correct?
I.The carryover-holding period only applies if the property exchanged is personal-use property.
II.The holding period of like-kind property received includes the holding period of the property exchanged.
​

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

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 15

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?

Accepted Answer

A) No gain or loss 
B) $10,000 gain 
C) $10,000 loss 
D) $185,000 gain 
A) No gain or loss 
B) $10,000 gain 
C) $10,000 loss 
D) $185,000 gain

Question 16

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.

Accepted Answer

Deferral of realized gains through invol

Question 17

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.

Accepted Answer

Franklin realizes a gain of $250,000 ($8

An involuntary conversion occurs whenever a loss (but not a gain) is realized from a transaction that occurs against the taxpayer's will.

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

Which of the following qualify as a like-kind exchange? -Personal residence for an apartment building.

Grant exchanges an old pizza oven from his business for a new oven. In addition to the old oven, which had a basis of $10,000, Grant pays $10,000. The new oven is valued at $22,000. What is Grant's basis in the new oven?

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?

Which of the following qualify as a like-kind exchange? -A business use automobile for a personal use automobile.

The holding period of an asset received in a like-kind exchange includes the holding period of the transferred asset.

Which of the following qualify as a like-kind exchange? -Microsoft common stock for Merrill Lynch common stock.

Which of the following statements is/are correct? I.The carryover-holding period only applies if the property exchanged is personal-use property. II.The holding period of like-kind property received includes the holding period of the property exchanged.

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

Exam 12: Non-Recognition Transactions

An involuntary conversion occurs whenever a loss (but not a gain) is realized from a transaction that occurs against the taxpayer's will.

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

Which of the following qualify as a like-kind exchange? -Personal residence for an apartment building.

Grant exchanges an old pizza oven from his business for a new oven. In addition to the old oven, which had a basis of $10,000, Grant pays $10,000. The new oven is valued at $22,000. What is Grant's basis in the new oven?

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?

Which of the following qualify as a like-kind exchange? -A business use automobile for a personal use automobile.

The holding period of an asset received in a like-kind exchange includes the holding period of the transferred asset.

Which of the following qualify as a like-kind exchange? -Microsoft common stock for Merrill Lynch common stock.

Which of the following statements is/are correct? I.The carryover-holding period only applies if the property exchanged is personal-use property. II.The holding period of like-kind property received includes the holding period of the property exchanged. ​

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

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

Which of the following statements is/are correct? I.The carryover-holding period only applies if the property exchanged is personal-use property. II.The holding period of like-kind property received includes the holding period of the property exchanged.