Question 1

If boot is received in a § 1031 like-kind exchange and gain is recognized, which formula correctly calculates the basis for the like-kind property received?

Accepted Answer

A) Adjusted basis of like-kind property surrendered + gain recognized - fair market value of boot received. 
B) Fair market value of like-kind property surrendered + gain recognized - fair market value of boot received. 
C) Fair market value of like-kind property received - postponed gain. 
D) Only a.and c. 
E) None of the above.

Question 2

Karen owns City of Richmond bonds with a face value of $10,000.She purchased the bonds on January 1, 2012, for $11,000.The maturity date is December 31, 2021.The annual interest rate is 8%.What is the amount of taxable interest income that Karen should report for 2012, and the adjusted basis for the bonds at the end of 2012, assuming straight-line amortization is appropriate?

Accepted Answer

A) $0 and $11,000. 
B) $0 and $10,900. 
C) $100 and $11,000. 
D) $100 and $10,900. 
E) None of the above.

Question 3

A condemned office building owned and used in the business by a taxpayer can be replaced by land and qualify for nonrecognition treatment.

Accepted Answer

A) True 
 B)False

Question 4

A factory building owned by Amber, Inc.is destroyed by a hurricane.The adjusted basis of the building was $400,000 and the appraised value was $425,000.Amber receives insurance proceeds of $390,000.A factory building is constructed during the nine-month period after the hurricane at a cost of $450,000.What is the recognized gain or loss and what is the basis of the new factory building?

Accepted Answer

A) $0 and $450,000. 
B) $0 and $460,000. 
C) ($10,000) and $440,000. 
D) ($10,000) and $450,000. 
E) None of the above.

Question 5

Gene purchased an SUV for $42,000 which he uses 100% for personal purposes.When the SUV is worth $29,000, he contributes it to his business.The gain basis is $42,000, the loss basis is $29,000, and the basis for cost recovery is $29,000.

Accepted Answer

A) True 
 B)False

Question 6

The holding period for property acquired by gift is automatically long term.

Accepted Answer

A) True 
 B)False

Question 7

Alicia buys a beach house for $425,000 which she uses as her personal vacation home.She builds an additional room on the house for $45,000.She sells the property for $510,000 and pays $30,000 in commissions and $4,000 in legal fees in connection with the sale.What is the recognized gain or loss on the sale of the house?

Accepted Answer

A) $0. 
B) $6,000. 
C) $30,000. 
D) $40,000. 
E) None of the above.

Question 8

If boot in the form of cash is given in a § 1031 like-kind exchange, the realized gain may be recognized.

Accepted Answer

A) True 
 B)False

Question 9

In determining the basis of like-kind property received, postponed losses are:

Accepted Answer

A) Added to the basis of the old property. 
B) Subtracted from the basis of the old property. 
C) Added to the fair market value of the like-kind property received. 
D) Subtracted from the fair market value of the like-kind property received. 
E) None of the above.

Question 10

If a taxpayer exchanges like-kind property under § 1031 and assumes a liability associated with the property received, the taxpayer is considered to have given boot in the transaction.

Accepted Answer

A) True 
 B)False

Question 11

Molanda sells a parcel of land for $25,000 in cash and the buyer assumes Molanda's mortgage of $20,000 on the land.Molanda's amount realized is $45,000.

Accepted Answer

A) True 
 B)False

Question 12

Ashley sells real property for $280,000.The buyer pays $4,000 in property taxes that had accrued during the year while the property was still legally owned by Ashley.In addition, Ashley pays $14,000 in commissions and $3,000 in legal fees in connection with the sale.How much does Ashley realize (the amount realized) from the sale of her property?

Accepted Answer

A) $259,000. 
B) $263,000. 
C) $267,000. 
D) $280,000. 
E) None of the above.

Question 13

The taxpayer can elect to have the exclusion of gain under § 121 (sale of principal residence) not apply.

Accepted Answer

A) True 
 B)False

Question 14

Joyce's office building was destroyed in a fire (adjusted basis of $350,000; fair market value of $400,000). Of the insurance proceeds of $360,000 she receives, Joyce uses $310,000 to purchase additional inventory and invests the remaining $50,000 in short-term certificates of deposit. She received only $360,000 because of a co-insurance clause in her insurance policy. What is Joyce's recognized gain or loss?

Accepted Answer

A) $0. 
B) $10,000 loss. 
C) $10,000 gain. 
D) $40,000 gain. 
E) None of the above.

Question 15

Alex used the § 121 exclusion three months prior to his marriage to June.If June sells her principal residence four months after their marriage, she cannot use the § 121 exclusion.

Accepted Answer

A) True 
 B)False

Question 16

During 2012, Ted and Judy, a married couple, decided to sell their residence, which had a basis of $225,000.They had owned and occupied the residence for 16 years.To make it more attractive to prospective buyers, they had the outside painted in April at a cost of $10,000 and paid for the work immediately.They sold the house in May for $795,000.Broker's commissions and other selling expenses amounted to $45,000.Since they both are age 68, they decide to rent an apartment. They purchase an annuity with the net proceeds from the sale.What is the recognized gain?

Accepted Answer

A) $0. 
B) $15,000. 
C) $25,000. 
D) $525,000. 
E) None of the above.

Question 17

Henrietta and Hollis have been married for 10 years when Hollis dies in a sky-diving accident.Their assets are summarized below.  Henrietta and Hollis reside in Wisconsin, a community property state.All of the assets were acquired with community funds and pass to Henrietta.Her basis for each of the assets becomes:
Car House Cash from life insurance proceeds

Accepted Answer

A) $20,000 $150,000 $ 10,000 
B) $17,500 $175,000 $ 10,000 
C) $17,500 $175,000 $100,000 
D) $15,000 $200,000 $100,000 
E) None of the above.

Question 18

On October 1, Paula exchanged an apartment building (adjusted basis of $375,000 and subject to a mortgage of $125,000) for another apartment building owned by Nick (fair market value of $550,000 and subject to a mortgage of $125,000).The property transfers were made subject to the mortgages.What amount of gain should Paula recognize?

Accepted Answer

A) $0. 
B) $25,000. 
C) $125,000. 
D) $175,000. 
E) None of the above.

Question 19

Which of the following satisfy the time period requirement for postponement of gain as a § 1033 (nonrecognition of gain from an involuntary conversion) involuntary conversion?

Accepted Answer

A) Al's business warehouse is destroyed by a tornado on October 31, 2012.Al is a calendar year taxpayer.He receives insurance proceeds on December 5, 2012.He reinvests the proceeds in another warehouse to be used in his business on December 29, 2014. 
B) Heather's personal residence is destroyed by fire on October 31, 2012.She is a calendar year taxpayer.She receives insurance proceeds on December 5, 2012.She purchases another principal residence with the proceeds on October 31, 2014. 
C) Mack's office building is condemned by the city as part of a road construction project.The date of the condemnation is October 31, 2012.He is a calendar year taxpayer.He receives condemnation proceeds from the city on that date.He purchases another office building with the proceeds on December 5, 2015. 
D) Lizzy's business automobile is destroyed in an accident on October 31, 2012.Lizzy is a fiscal year taxpayer with the fiscal year ending on June 30th.She receives insurance proceeds on December 5, 2012.She purchases another business automobile with the proceeds on June 1, 2015. 
E) All of the above.

Question 20

Purchased goodwill is assigned a basis equal to cost, and developed or self-created goodwill is assigned a basis equal to one-fifteenth of the amount expended.

Accepted Answer

A) True 
 B)False

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

If boot is received in a § 1031 like-kind exchange and gain is recognized, which formula correctly calculates the basis for the like-kind property received?

A condemned office building owned and used in the business by a taxpayer can be replaced by land and qualify for nonrecognition treatment.

Gene purchased an SUV for $42,000 which he uses 100% for personal purposes.When the SUV is worth $29,000, he contributes it to his business.The gain basis is $42,000, the loss basis is $29,000, and the basis for cost recovery is $29,000.

The holding period for property acquired by gift is automatically long term.

If boot in the form of cash is given in a § 1031 like-kind exchange, the realized gain may be recognized.

In determining the basis of like-kind property received, postponed losses are:

If a taxpayer exchanges like-kind property under § 1031 and assumes a liability associated with the property received, the taxpayer is considered to have given boot in the transaction.

Molanda sells a parcel of land for $25,000 in cash and the buyer assumes Molanda's mortgage of $20,000 on the land.Molanda's amount realized is $45,000.

The taxpayer can elect to have the exclusion of gain under § 121 (sale of principal residence) not apply.

Alex used the § 121 exclusion three months prior to his marriage to June.If June sells her principal residence four months after their marriage, she cannot use the § 121 exclusion.

Which of the following satisfy the time period requirement for postponement of gain as a § 1033 (nonrecognition of gain from an involuntary conversion) involuntary conversion?

Purchased goodwill is assigned a basis equal to cost, and developed or self-created goodwill is assigned a basis equal to one-fifteenth of the amount expended.