Question 1

Joyce, a farmer, has the following events occur during the tax year.Which of the events qualify as an involuntary conversion under § 1033 (nonrecognition of gain from an involuntary conversion)?

Accepted Answer

A)  Her farm tractor is hauled to the city dump because it is worn out.
B)  She burns her barn because it is infested with termites.
C)  Her personal residence, adjusted basis of $100,000, is condemned to make way for an interstate highway.She recovers condemnation proceeds of $175,000.
D)  She sells 10 acres of pasture land at a loss of $40,000 because she has reduced the size of her dairy herd due to a reduction in milk prices.
E)  None of the above. C

Question 2

Jared, a fiscal year taxpayer with a September 30th year-end, owns an office building (adjusted basis of $715,000) that was destroyed by fire on September 12, 2012. If the insurance settlement was $950,000 (received March 1, 2013), what is the latest date that Jared can replace the office building in order to qualify for § 1033 nonrecognition of gain?

Accepted Answer

A)  September 30, 2013.
B)  September 30, 2014.
C)  September 30, 2015.
D)  December 31, 2015.
E)  None of the above. C

Question 3

Peach, Inc., owns a delivery truck (cost of $35,000) on which depreciation of $21,000 has been deducted.The truck and $14,000 cash are used to acquire a new truck at a cost of $40,000.What is Peach's basis for the new truck?

Accepted Answer

A)  $0.
B)  $28,000.
C)  $40,000.
D)  $49,000.
E)  None of the above. B

Question 4

The basis of boot received in a like-kind exchange is its fair market value, unless the realized gain is a smaller amount.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements is correct with respect to § 1044 (rollover of publicly traded securities gain into specialized small business investment companies)?

Accepted Answer

A)  Section 1044 provides for permanent exclusion of gain.
B)  To qualify under § 1044, the proceeds must be reinvested within one year of the sale.
C)  The statutory ceilings on § 1044 treatment are the same for individual and corporate taxpayers.
D)  Only b.and c.are correct.
E)  None of the above.

Question 6

Owen and Polly have been married for three years.Owen sells investment property to Polly for a realized loss of $140,000.Owen's loss of $140,000 is disallowed and Polly's basis for the property she purchased is her cost.

Accepted Answer

A) True 
 B)False

Question 7

A realized gain on the sale or exchange of a personal use asset is recognized, but a realized loss on the sale, exchange, or condemnation of a personal use asset is not recognized.

Accepted Answer

A) True 
 B)False

Question 8

Brett owns investment land located in Tucson, Arizona.He exchanges it for other investment land.In which of the following locations may the other investment land be located and enable Brett to qualify for § 1031 like-kind exchange treatment?

Accepted Answer

A)  Mexico City, Mexico.
B)  Toronto, Canada.
C)  Paris, France.
D)  Only a.and b.
E)  None of the above.

Question 9

Which of the following statements correctly reflects the rules regarding inherited property in 2012?

Accepted Answer

A)  A particular beneficiary's basis can be greater than, equal to, or less than the decedent's basis.
B)  A particular beneficiary's holding period includes the donor's holding period.
C)  The alternate valuation date election only applies to those assets which have declined in value (i.e., does not cover assets that have increased in value) .
D)  Only a.and b.are correct.
E)  a., b., and c.are correct.

Question 10

Sandra's automobile, which is used exclusively in her trade or business, was damaged in an accident.The adjusted basis prior to the accident was $11,000.The fair market value before the accident was $10,000 and the fair market value after the accident is $6,000.Insurance proceeds of $3,200 are received.What is Sandra's adjusted basis for the automobile after the casualty?

Accepted Answer

A)  $0.
B)  $7,000.
C)  $7,800.
D)  $10,200.
E)  None of the above.

Question 11

Rob was given a residence in 2012.At the time of the gift, the residence had a fair market value of $200,000, and its adjusted basis to the donor was $140,000.The donor paid a gift tax of $10,000 on the taxable gift of $187,000.What is Rob's basis for gain?

Accepted Answer

A)  $140,000.
B)  $143,209.
C)  $150,000.
D)  $200,000.
E)  None of the above.

Question 12

A taxpayer whose principal residence is destroyed in a fire can use both the § 121 (sale of residence gain exclusion) and the § 1033 (involuntary conversion postponement of gain) provisions.

Accepted Answer

A) True 
 B)False

Question 13

Andrew acquires 2,000 shares of Eagle Corporation stock for $100,000 on March 31, 2005.On January 1, 2012, he sells 125 shares for $5,000.On January 22, 2012, he purchases 135 shares of Eagle Corporation stock for $6,075.When does Andrew's holding period begin for the 135 shares?

Accepted Answer

A)  January 22, 2012.
B)  January 1, 2012.
C)  March 31, 2005.
D)  March 31, 2005, for 125 shares and January 22, 2012, for 10 shares.
E)  None of the above.

Question 14

Eva exchanges a pick-up truck that she has held for personal use plus $19,000 for a new pick-up truck which she will use exclusively in her sole proprietorship business.This exchange qualifies for nontaxable exchange treatment.

Accepted Answer

A) True 
 B)False

Question 15

Under the taxpayer-use test for a § 1033 involuntary conversion, the taxpayer has less flexibility in qualifying replacement property than under the functional-use test.

Accepted Answer

A) True 
 B)False

Question 16

Realized losses from the sale or exchange of stock are disallowed if within 30 days before or 30 days after the sale or exchange, the taxpayer acquires substantially identical stock.

Accepted Answer

A) True 
 B)False

Question 17

If insurance proceeds are received for property used in a trade or business, a casualty transaction can result in recognized gain or recognized loss.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following might motivate a taxpayer to try to avoid like-kind exchange treatment?

Accepted Answer

A)  Taxpayer has unused NOL carryovers.
B)  Taxpayer has unused general business credit carryovers.
C)  Taxpayer has suspended or current passive activity losses.
D)  Only a.and b.are correct.
E)  a., b., and c.are correct.

Question 19

Nancy and Tonya exchanged assets.Nancy gave Tonya her personal residence with an adjusted basis of $280,000 and a fair market value of $560,000.The house has a mortgage of $200,000 which is assumed by Tonya.Tonya gave Nancy a yacht used in her business with an adjusted basis of $250,000 and a fair market value of $360,000.What is Tonya's realized and recognized gain?

Accepted Answer

A)  $310,000 realized and $310,000 recognized gain.
B)  $310,000 realized and $0 recognized gain.
C)  $110,000 realized and $110,000 recognized gain.
D)  $110,000 realized and $0 recognized gain.
E)  None of the above.

Question 20

Which of the following statements is false?

Accepted Answer

A)  A realized gain that is never recognized results in the temporary recovery of more than the taxpayer's cost or other basis for tax purposes.
B)  A realized gain on which recognition is postponed results in the temporary recovery of more than the taxpayer's cost or other basis for tax purposes.
C)  A realized loss that is never recognized results in the permanent recovery of less than the taxpayer's cost or other basis for tax purposes.
D)  A realized loss on which recognition is postponed results in the temporary recovery of less than the taxpayer's cost or other basis for tax purposes.
E)  All of the above.

Exam 13: Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 1

Joyce, a farmer, has the following events occur during the tax year.Which of the events qualify as an involuntary conversion under § 1033 (nonrecognition of gain from an involuntary conversion) ?

Peach, Inc., owns a delivery truck (cost of $35,000) on which depreciation of $21,000 has been deducted.The truck and $14,000 cash are used to acquire a new truck at a cost of $40,000.What is Peach's basis for the new truck?

The basis of boot received in a like-kind exchange is its fair market value, unless the realized gain is a smaller amount.

Which of the following statements is correct with respect to § 1044 (rollover of publicly traded securities gain into specialized small business investment companies) ?

Owen and Polly have been married for three years.Owen sells investment property to Polly for a realized loss of $140,000.Owen's loss of $140,000 is disallowed and Polly's basis for the property she purchased is her cost.

A realized gain on the sale or exchange of a personal use asset is recognized, but a realized loss on the sale, exchange, or condemnation of a personal use asset is not recognized.

Brett owns investment land located in Tucson, Arizona.He exchanges it for other investment land.In which of the following locations may the other investment land be located and enable Brett to qualify for § 1031 like-kind exchange treatment?

Which of the following statements correctly reflects the rules regarding inherited property in 2012?

Rob was given a residence in 2012.At the time of the gift, the residence had a fair market value of $200,000, and its adjusted basis to the donor was $140,000.The donor paid a gift tax of $10,000 on the taxable gift of $187,000.What is Rob's basis for gain?

A taxpayer whose principal residence is destroyed in a fire can use both the § 121 (sale of residence gain exclusion) and the § 1033 (involuntary conversion postponement of gain) provisions.

Andrew acquires 2,000 shares of Eagle Corporation stock for $100,000 on March 31, 2005.On January 1, 2012, he sells 125 shares for $5,000.On January 22, 2012, he purchases 135 shares of Eagle Corporation stock for $6,075.When does Andrew's holding period begin for the 135 shares?

Eva exchanges a pick-up truck that she has held for personal use plus $19,000 for a new pick-up truck which she will use exclusively in her sole proprietorship business.This exchange qualifies for nontaxable exchange treatment.

Under the taxpayer-use test for a § 1033 involuntary conversion, the taxpayer has less flexibility in qualifying replacement property than under the functional-use test.

Realized losses from the sale or exchange of stock are disallowed if within 30 days before or 30 days after the sale or exchange, the taxpayer acquires substantially identical stock.

If insurance proceeds are received for property used in a trade or business, a casualty transaction can result in recognized gain or recognized loss.

Which of the following might motivate a taxpayer to try to avoid like-kind exchange treatment?

Which of the following statements is false?