Deck 11: Property Transactions: Nonrecognition of Gains and Losses

Question 1

In a like-kind exchange, gains and losses are never recognized.

Answer 1

False
Recognition is only postponed
Also, if boot is involved there may be recognition at the time of exchange

Question 2

Ray Rambler's office building with a basis of $75,000 was condemned by the county which paid him $120,000 as compensation. He purchased a new new office one year later for $105,000. Ray is entitled to postpone all of the $45,000 realized gain.

Answer 2

False
Ray must recognize $15,000 gain, to the extent that the compensation of $120,000 exceeds the replacement cost of $105,000.

Question 3

Leonard Longstreet owns a rental building with an adjusted basis of $300,000 and a fair market value of
$280,000. In July 2012, the state condemned the property for a highway project and paid him $280,000, which he immediately reinvested in a similar rental property. Leonard may recognize a loss.

Answer 3

True
Leonard has a recognized loss of $20,000. the nonrecognition in involuntary conversions applies only to gains.

Question 4

fte requirements for replacement property under a casualty and theft are less restrictive than for like-kind exchanges.

Question 5

Nonrecognition of gain is mandatory regardless of whether an involuntary conversion is for money or property.

Question 6

Taxpayers may elect out of the exclusion for sale of residence.

Question 7

fte exclusion on the sale of a personal residence is $500,000 for taxpayers filing jointly and as single individuals.

Question 8

A taxpayer is required to own and occupy the residence three out of the last five years in order to qualify for the exclusion.

Question 9

fte exlusion may be taken on a sale of a residence once each year, assuming a sale takes place that often.

Question 10

Any excluded gain on the sale of the residence reduces the basis of the new residence.

Question 11

If a gain realized on the sale of a personal residence is above the allowed exclusion, the excess may be deferred through a reduction in the basis of the new residence.

Question 12

Loss from the sale of a personal residence is never recognized but gain from the sale of a personal residence may be recognized.

Question 13

Melvin Monroe reads in the newspaper that the state highway department has decided to take his property for public use. He verifies the news by phoning an official of the highway department who is involved in the project acquiring this property. ftis is a threat of condemnation.

Question 14

A liability assumed by a transferee is considered boot received by the transferor.

Question 15

Losses from involuntary conversions are never recognized.

Question 16

Alfred Ahern sold a truck with an adjusted basis of $6,000 for $1,500 to a salvage yard. He purchased a replacement truck two months later for $24,000. Alfred's basis in the new truck is $28,500.

Question 17

If boot is received in a like-kind exchange, realized losses are not recognized but realized gains may be recognized.

Question 18

Unimproved land can be exchanged for an apartment house and qualify as a like-kind exchange.

Question 19

fte general like-kind exchange rule is that there is nonrecognition of loss but recognition of gain.

Question 20

Ed Evans traded in a large lathe used in his business with an adjusted basis of $7,000 for a smaller lathe valued at
$8,000. In addition to the smaller lathe, Ed received $2,000 cash. Ed's recognized gain is $3,000.

Question 21

A three-party exchange is used to remedy a situation in which one party wants a nontaxable exchange while the other party wishes to sell property.

Question 22

A total residence can qualify as a principal residence if it is used partly for business purposes.

Question 23

fte exchange of land for an office building qualifies as like kind property, but the exchange of a vacant lot for a warehouse would not.

Question 24

Jim Jones went to court to stop a state commission from acquiring his property to widen a state highway. fte court ruled for the state highway commission, whereupon the commission paid Jim the amount fixed by the court. Jim's property was involuntarily converted.

Question 25

If an exchange of property involves the assumption of a liability by the transferee it is treated like boot received by the transferee.

Question 26

Taxpayers that realize a loss on a like-kind exchange will immediately derive tax benefits associated with deducting the loss.

Question 27

A like-kind exchange would occur when a business trades in a truck as a part of the consideration in the purchase of a new truck.

Question 28

It is possible for both parties to receive boot in a like-kind exchange if one party receives cash and the other party is treated as having received boot by having been released from more debt than it assumed on the exchange.

Question 29

If the taxpayer's investment in an apartment building is condemned by the local government, the taxpayer can replace it with any other rental property; it does not have to be another apartment building.

Question 30

Rose Rambler, a calendar-year taxpayer, owned a rental building that was condemned by the state on April 30, 2012. fte state paid Rose the fair market value of the property on Jun 29, 2012. Rose must replace her property by December 31, 2015, to avoid reporting the gain.

Question 31

If a taxpayer becomes physically or mentally incapable of self-care, the taxpayer must have owned and used the residence as a principal residence for a period of at least 18 months during the five years preceding the sale in order to consider the residence as being used while in a nursing home.

Question 32

fte exchange of a warehouse for a printing press is a nontaxable like-kind exchange of property.

Question 33

Ed Edmonds exchanged a business truck with an adjusted basis of $320,000 for another business truck with a fair market value of $20,000, a boat with a fair market value of $6,000, and $2,000 cash. What is the basis of the new truck?

A) $18,000
B) $20,000
C) $24,000
D) $30,000
E) $32,000

Question 34

A widowed taxpayer's period of ownership of a residence includes the period the deceased spouse owned and used the property before death.

Question 35

fte time during which the taxpayer's spouse or former spouse owned the residence cannot be added to the taxpayer's period of ownership.

Question 36

John Jobs is a successful building contractor who constructs and occupies a new home approximately once every two or three years. Given he is married and satisfies the various requirements, he may exclude up to $500,000 in gain on such sales once every two years.

Question 37

Ruth Rumsfeld inherited a home in 2012 that had a basis to her of $100,000. She moved into the inherited home and made it her new principal residence. She sold her former principal residence she had lived in for the past six years for $90,000, realizing a gain of $20,000. She must report the $20,000 gain because she did not reinvest the proceeds in her new principal residence.

Question 38

A realized loss on the sale of a residence may be either deducted or added on to the basis of the new residence.

Question 39

Jake Jacobson sold his personal residence on June 15, 2012, which he had purchased a year earlier, in order to accept a position at a new college 500 miles further away. Jake may not exclude any gain on the sale since he did not live in the residence for at least two years.

Question 40

fte exchange of a personal residence for land qualifies as a nontaxable exchange.

Question 41

Arthur Austen's property having an adjusted basis of $68,000 is condemned by the state government. fte authorities replace his property with other qualified property which cost them $100,000. What is Arthur's basis in the new property?

A) $32,000
B) $0
C) $68,000
D) $100,000

Question 42

Tom ftompson traded in a station wagon (used in his business) which had an adjusted basis of $7,700 for a new one costing $26,900. fte auto dealer allowed a trade-in allowance of $8,000 on the old station wagon and Tom paid $18,900 in cash. What is Tom's basis in the new station wagon?

A) $18,900
B) $15,700
C) $26,600
D) $26,900

Question 43

A fire destroyed Carl Cramer's business automobile. Carl originally paid $24,000 for the automobile and up to the time of the fire had been allowed $15,000 in depreciation. Within three months the insurance company replaced the old automobile with a new one which was worth $21,000. What is the basis of the new automobile for purposes of computing depreciation?

A) $3,000
B) $9,000
C) $15,000
D) $21,000
E) $24,000

Question 44

Arthur Austen's property having an adjusted basis of $68,000 is condemned by the state government. fte authorities replace his property with other qualified property which cost them $100,000. What is Arthur's recognized gain?

A) $32,000
B) $0
C) $68,000
D) $100,000

Question 45

Which of the following statements are correct? (1.) A sale is generally a transfer of property for money only or for a promise to pay money. (2.) An exchange is a transfer of property in return for other property or services.
(3)) Recognized gain is always the excess of the amount realized over the adjusted basis of the property. (4.) Realized loss is always the excess of the adjusted basis of the property over the amount realized.
(5)) fte adjusted basis of the property is always the original cost adjusted for such items as casualty losses, improvements, and depreciation.e.g., in the case of inherited property or property received by gift.

A) 1, 2, and 3
B) 1, 2, and 4
C) 1, 3, and 4
D) 1, 4, and 5
E) 2, 3, and 4

Question 46

If Ben in the preceding problem purchased another home for $400,000, how much gain is recognized?

A) $510,000
B) $10,000
C) $260,000
D) $45,000
E) None of the above

Question 47

Ben Benson, single, sold his home that he had owned for 20 years for $695,000. He purchased it for $140,000 and made $45,000 of capital improvements on the home during his time of ownership. How much gain is excluded?

A) $510,000
B) $500,000
C) $260,000
D) $250,000
E) None of the above

Question 48

Assume instead that the Bennetts resided in a very depressed neighborhood and the home purchased in 2002 for $200,000 (capital improvements of $40,000) was sold for only $110,000. How much loss is recognized?

A) $200,000
B) $130,000
C) $90,000
D) $-0-
E) None of the above

Question 49

To be a nontaxable, like-kind exchange, all of the following conditions must be met except:

A) fte property must be tangible property.
B) fte exchange must meet the completed transaction requirement (180-day requirement).
C) fte property must be (un)encumbered by mortgages or other liabilities.
D) fte property must be business or investment property.

Question 50

Which of the following is not an example of a nontaxable like-kind exchange?

A) Improved real estate for unimproved real estate.
B) A printer for a computer.
C) Common stock of one company exchanged for common stock of another.
D) fte trade of an apartment building for a store building.
E) Real estate for a ranch.

Question 51

Bobby and Betty Bennett sold for $450,000 in October of 2012 their residence that they had purchased in 2002 for $200,000. ftey made major capital improvements during their 10-year ownership totaling $40,000. What is their recognized gain?

A) $250,000
B) $210,000
C) $-0-
D) $450,000
E) None of the above

Question 52

Suppose instead that in the preceding problem the Bennetts sold their home for $800,000. ftey moved into a smaller home costing $250,000. How much gain must they recognize?

A) $560,000
B) $500,000
C) $310,000
D) $60,000
E) None of the above

Question 53

Brian Bush and Charles Chex exchange business machines. Brian gives Charles a machine with a basis of $3,500 (fair market value $3,000) plus $2,000 in cash. Charles gives Brian a machine with a basis of $5,000 and a fair market value of $5,000. What is Charles's recognized gain and his basis in the new machine?

A) $2,000 and $5,000
B) $500 and $3,500
C) $1,000 and $5,000
D) $0 and $3,000

Question 54

David Drummond and Edward Engels exchange business cars. David gives Edward a car with a basis of $15,000 and a fair market value of $21,500. David receives from Edward a car with a basis of $12,500 (fair market value of $17,000) and $4,500 cash. What is David's recognized gain and basis in the new car?

A) $6,500 and $17,000
B) $4,500 and $15,000
C) $0 and $10,500
D) $2,000 and $12,500

Question 55

Bill Binkley's office building with a basis of $480,000 is condemned by the state. fte state awards him $600,000 and he then purchases a new office building for $520,000. What is Bill's recognized gain?

A) $80,000
B) $120,000
C) $40,000
D) $0

Question 56

Jeff Jordan exchanges a truck used in his business plus $20,000 cash for a new truck with a fair market value of $34,000. His adjusted basis in the old truck is $16,000 and its fair market value is $14,000. What is Jeff's recognized gain or loss and the basis in the new truck?

A) $0 and $34,000
B) $20,000 gain and $16,000
C) $0 and $36,000
D) $2000 loss and $34,000

Question 57

Bill Binkley's office building with a basis of $480,000 is condemned by the state. fte state awards him $600,000 and he then purchases a new office building for $520,000. What is Bill's basis in the new residence?

A) $480,000
B) $520,000
C) $600,000
D) $400,000

Question 58

Assume that the Colemans in the preceding problem instead sold their home on December 1, 2012, for $800,000. How much gain must the Colemans recognize?

A) $425,000
B) $291,667
C) $133,333
D) $-0-
E) None of the above

Question 59

Calvin and Carolyn Coleman purchased a home in San Francisco for $375,000 on October 1, 2011. Calvin obtained a job in Portland, Oregon, and on December 1, 2012, the Colemans sold their home in San Francisco for $650,000. How much gain must the Colemans recognize?

A) $500,000
B) $291,667
C) $275,000
D) $-0-
E) None of the above

Question 60

Gary and Gerdy Gray purchased a home for $125,000 on September 15, 2010. On October 7, 2011 they were divorced, and as part of the divorce agreement, the home was transferred to Gerda who sold the home on October 18, 2012 for $350,000. How much can Gerda exclude?

A) $350,000
B) $250,000
C) $225,000
D) $-0-
E) None of the above

Question 61

How much of a replacement residence would Peter have to purchase in order to exclude or defer all gain realized in the preceding problem?

A) $250,000
B) $180,000
C) $120,000
D) $300,000
E) None of the above

Question 62

Dexter Davenport had an adjusted basis of $230,000 in real estate which he held for investment. He exchanged it for other real estate to be held for investment with a fair market value of $210,000, a boat with a fair market value of $45,000 and $15,000 cash. What is Dexter's basis in the real estate and the boat received?

A) Real Estate: $210,000; Boat: $30,000
B) Real Estate: $210,000; Boat: $45,000
C) Real Estate: $225,500; Boat: $45,000
D) Real Estate: $230,000; Boat: $40,000

Question 63

Peter Paulson purchased a residence on February 19, 2010 for $180,000. On September 7, 2012, a tornado completely destroyed their home. fte home was insured for its replacement value and homes in Peter's area had appreciated greatly. He received proceeds of $420,000. How much does Peter include?

A) $250,000
B) $240,000
C) $-0-
D) $420,000
E) None of the above

Question 64

If Norman in the preceding problem had instead sold the home for $300,000, how much must Norman recognize?

A) $250,000
B) $163,750
C) $156,250
D) $-0-
E) None of the above

Question 65

Assume instead that in the preceding problem, as part of the divorce agreement, Gary retained ownership of the residence but the use of the home was granted to Gerda as long as Gary owns the residence. If Gary sells the residence on October 18, 2012 for $350,000, how much can Gary exclude?

A) $350,000
B) $250,000
C) $225,000
D) $-0-
E) None of the above

Question 66

Norman Nunn had purchased his residence on January 12, 2011, for $155,000 and then sold it on April 12, 2012 for $475,000 because of illness. How much gain must Norman recognize?

A) $250,000
B) $163,750
C) $156,250
D) $475,000
E) None of the above

Question 67

Which of the following statements concerning property qualifying for like- kind exchange treatment is incorrect?

A) fte property must be held for productive use in a trade or business or for investment.
B) fte transfer of partnership interests qualify for like-kind exchange treatment.
C) fte exchange of inventory for a business automobile does not qualify for like-kind exchange treatment.
D) fte exchange of unimproved property for improved property qualifies for like-kind exchange treatment.

Question 68

Spears Company's delivery truck was destroyed in a flood. fte insurance company paid Spears $20,000 for the delivery truck. fte delivery truck had an adjusted basis of $24,000 at the time of the flood. Within 10 days after receiving the insurance proceeds for the destruction of the delivery truck, Spears bought another delivery truck that cost $19,000. How much gain or loss does Spears recognize on the involuntary conversion of its delivery truck?

A) $1,000 gain
B) $3,000 loss
C) $4,000 loss
D) $24,000 loss

Question 69

Bonilla Company's office building was destroyed by a tornado. fte insurance company paid Bonilla $600,000 for the destruction of the office building within 30 days after the tornado. At the time of the tornado, Bonilla had an adjusted basis of $240,000 in the office building. Within six months after the tornado, Bonilla bought a new office building for $500,000 by paying $320,000 in cash and signing a mortgage note for $180,000. What is the minimum amount of gain that Bonilla must recognize on the involuntary conversion of its office building?

A) $0.
B) $100,000.
C) $280,000.
D) $360,000.

Question 70

Winston White exchanged business real estate that had an adjusted basis of $16,000 for other business real estate with a fair market value of $15,000 and $4,000 cash. What is Winston's basis in the property received?

A) $12,000
B) $15,000
C) $16,000
D) $19,000
E) $20,000

Question 71

If Peter in the preceding problem had received proceeds of $550,000. How much gain would be recognized?

A) $-0-
B) $120,000
C) $180,000
D) $375,000
E) None of the above

Question 72

A barn, destroyed by fire, had a basis of $40,000. fte owner received $50,000 in insurance proceeds. fte barn was replaced by another barn costing $45,000. fte basis of the new barn is:

A) $40,000
B) $45,000
C) $50,000
D) $55,000
E) $60,000

Question 73

Susan Short's office building is destroyed in a fire. fte adjusted basis in the building is $200,000 and its fair market value is $350,000. fte insurance company reimburses Susan $330,000 for its loss, and she immediately purchases a new office building for $310,000. What is Susan's recognized gain and adjusted basis in the new office building?

A) $20,000 and $200,000, respectively.
B) $0 and $310,000, respectively.
C) $0 and $330,000, respectively.
D) $20,000 and $310,000, respectively.
E) None of the above.

Question 74

A corporation exchanges machinery plus $20,000 cash for new machinery worth $34,000. At the time of the exchange, the corporation's adjusted basis in the machine it exchanges is $16,000 and its fair market value is $14,000. What amount will the corporation recognize on the exchange and what will be its depreciable basis in the new machine?

A) $0 and $36,000, respectively.
B) $0 and $34,000, respectively.
C) $2,000 loss and $34,000, respectively.
D) $20,000 gain and $16,000, respectively.

Question 75

Real property where Paul Peterson's warehouse is located is condemned by the state government on November 23, 2012. Paul's adjusted basis in the warehouse is $420,000. He receives its $1 million condemnation award from the state on March 5, 2013. What is the latest date that Paul can purchase qualified replacement property and be able to defer the entire $580,000 realized gain from the condemnation?

A) November 23, 2015.
B) December 31, 2015.
C) March 5, 2016.
D) December 31, 2016.
E) November 23, 2016.

Question 76

Margaret Moraine exchanged a business auto that had an adjusted basis to her of $24,000 with an outstanding liability of $4,000 for a new auto with a fair market value of $22,000. Margaret paid $2,000 in cash and her liability was assumed by the other party. What is Margaret's basis in the new auto?

A) $18,000
B) $20,000
C) $22,000
D) $24,000
E) None of the above

Question 77

Which of the following is not an involuntary conversion?

A) Casualty
B) Livestock destroyed because of disease
C) Notice that property will be condemned because it is unfit for human use
D) ftreat of condemnation

Question 78

Real property where Paul Peterson's warehouse is located is completely destroyed by fire on November 23, 2012. Paul purchased the warehouse in 2006 for $800,000; its adjusted basis in the warehouse is $420,000. He receives $1 million from the insurance company on March 5, 2013. What amount must Paul reinvest in qualified replacement property and be able to defer the entire $580,000 realized gain from the condemnation?

A) $420,000.
B) $520,000.
C) $800,000.
D) $1,000,000.

Question 79

Anderson Company exchanged land used in its business for another parcel of land with a fair market value of $160,000. In addition, Anderson received $40,000 in cash. Anderson will use the new parcel of land in its business. fte land that Anderson gave in exchange had an adjusted basis of $230,000 at the time of the exchange. What is Anderson's adjusted basis in the new land it received in the exchange?

A) $160,000.
B) $190,000.
C) $230,000.
D) $260,000.

Question 80

Henry Higgins exchanged property with a basis of $100,000 and a fair market value of $125,000 for other similar property with a fair market value of $160,000. He also gave up 100 shares of Bookbinder, Inc. stock worth $25,000 with an adjusted basis of $15,000. What is Henry's realized gain and his recognized gain?

A) Realized gain: $10,000; Recognized gain: $10,000
B) Realized gain: $10,000; Recognized gain: $0
C) Realized gain: $45,000; Recognized gain: $10,000
D) Realized gain: $45,000; Recognized gain: $0