Question 1

Knox operated a business which was damaged by a hurricane in 2015. His losses were as follows:  a. What is Knox's net casualty loss (if any) assuming his AGI is $85,000 prior the deduction? Assume he properly replaced all assets.
b. What is his basis in replacement Asset 1 purchased for $8,000 assuming Knox elected the non-recognition of gain from an involuntary conversion?

Accepted Answer

a. $7,200 business casualty loss. The involuntary conversion rules do not apply to the loss on asset 3. Also, since this is a business casualty, neither the 10% AGI floor nor the $100 per event floor applies.
b. $6,000 ($8,000 FMV/purchase price - $2,000 deferred)

Question 2

Lee sells equipment (basis $10,000) to related party, Lee Construction Inc., for $6,000. The $4,000 loss is:

Accepted Answer

A)   Deductible by Lee on his individual return.
B)   Not deductible by Lee but Lee Construction has a basis of $10,000 in the asset.
C)   Not deductible by Lee but Lee Construction has a basis of $6,000 in the asset.
D)  None of these. C

Question 3

If one spouse sells a home and excludes the gain on the sale, the gain on the sale of a residence by the other spouse is:

Accepted Answer

A)   Never excluded.
B)   Excluded up to $500,000.
C)   Excluded up to $250,000.
D)  Excluded up to $250,000 plus any gain exclusion not used by the first spouse. C

Question 4

Laverne exchanges a rental beach house with an adjusted basis of $400,000 and fair market value of $320,000 for a mini-storage building with a fair market value of $200,000 plus $120,000 cash. What is the recognized gain or loss on the exchange and the basis of the mini-storage building?

Accepted Answer

The answer of Laverne exchanges a rental beach house with...

Question 5

On June 15, 2015, Roco sold land held for investment to Scotty for $100,000 cash and an installment note of $500,000 payable in five equal annual installments beginning on June 15, 2016, plus interest at 10%. Roco's basis in the land is $300,000. What amount of gain is recognized in 2015 under the installment method?

Accepted Answer

The answer of On June 15, 2015, Roco sold land...

Question 6

A wash sale occurs when a taxpayer sells stock or securities at a loss and, within a period of 60 days before or 60 days after the sale, the taxpayer acquires substantially identical stock or securities.

Accepted Answer

A) True 
 B)False

Question 7

Sanjay exchanges a warehouse he uses in his rental business for a building owned by Sidney which he will use in his rental business. The adjusted basis of Sanjay's building is $320,000 and the fair market value is $500,000. The adjusted basis of Sidney's warehouse is $160,000 and the fair market value is $500,000. Which of the following statements is correct?

Accepted Answer

A)   Sanjay's recognized gain is $0 and his basis for the warehouse received is $500,000.
B)   Sanjay's recognized gain is $180,000 and his basis for the warehouse received is $320,000.
C)   Sanjay's recognized gain is $0 and his basis for the warehouse received is $320,000.
D)  Sanjay's recognized gain is $180,000 and his basis for the warehouse received is $500,000.

Question 8

Dr. and Mrs. Spankle purchased a residence on January 12, 2011, for $250,000. On May 15, 2015, they sold the residence for $360,000, and paid selling expenses of $18,000. They purchased a new home for $354,000. Determine the Spankles' realized and recognized gain.

Accepted Answer

The answer of Dr. and Mrs. Spankle purchased a residence...

Question 9

The installment method cannot be used to report the gain on which of the following assets?

Accepted Answer

A)   Land used in a trade or business.
B)   Stock traded on a securities market.
C)   Building used in a trade or business.
D)  Stock in a privately-held business.

Question 10

A barn with an adjusted basis of $125,000 was destroyed by a tornado on March 5, 2015. On May 15, 2015, the insurance company paid the owner $150,000. The owner reinvested $170,000 in another barn. What is the basis of the new barn if non-recognition of gain from an involuntary conversion is elected?

Accepted Answer

A)   $0.
B)   $120,000.
C)   $145,000.
D)  $170,000.

Question 11

Jasmine sold land for $250,000 in 2015. The land had a basis of $118,000 and she incurred selling expenses of $10,000. Jasmine received $50,000 cash down in 2015 and will receive five additional annual payments of $40,000 each. What is Jasmine's gross profit percentage on the sale?

Accepted Answer

A)   47.2%.
B)   48.8%.
C)   51.2%.
D)  100.0%.

Question 12

To qualify for the IRC Section 121 exclusion of gain on the sale of a residence, the taxpayer must have lived in the home for a continuous two-year period.

Accepted Answer

A) True 
 B)False

Question 13

If married taxpayers live in their personal residence for more than two years, the couple can exclude a maximum of $250,000 on the gain from the sale of the residence.

Accepted Answer

A) True 
 B)False

Question 14

In what instances, concerning involuntary conversions, must a taxpayer file an amended tax return (Form 1040X)?

Accepted Answer

A)   When the taxpayer does not buy replacement property within the replacement period.
B)   When the replacement property purchased by the taxpayer costs less than the amount realized for the converted property.
C)   When the entire amount of the insurance proceeds is used to purchase replacement property.
D)  Both when the taxpayer does not buy replacement property within the replacement period and when the replacement property purchased by the taxpayer costs less than the amount realized for the converted property.

Question 15

Raymond and Susan are married and 55 years old. They sell their personal residence for $850,000 cash. They purchased the house fifteen years ago for $200,000. What is the amount of gain that Raymond and Susan should recognize on the sale?

Accepted Answer

A)   $0.
B)   $150,000.
C)   $500,000.
D)  $650,000.

Question 16

Raymond exchanges a rental lake house with an adjusted basis of $200,000 and fair market value of $320,000 for a rental beach house with a fair market value of $290,000 and $30,000 cash. What are the recognized gain or loss and the basis of the beach house?

Accepted Answer

A)   $0 gain and $230,000 basis.
B)   $30,000 gain and $200,000 basis.
C)   $30,000 gain and $230,000 basis.
D)  $120,000 gain and $320,000 basis.

Question 17

Depreciation recapture on an asset sold using the installment method is recognized ratably as payments are received.

Accepted Answer

A) True 
 B)False

Question 18

The exchange of a 5-year class asset for a 7-year class asset would not qualify for "like-kind" treatment.

Accepted Answer

A) True 
 B)False

Question 19

The state condemned Cassidy's land on November 25, 2015. The land has a $400,000 basis. Cassidy received insurance proceeds of $610,000 on January 27, 2016. Cassidy has until what date to defer the gain under the involuntary conversion rules?

Accepted Answer

A)   December 31, 2017.
B)   November 25, 2017.
C)   December 31, 2018.
D)  December 31, 2019.

Question 20

The holding period of property received in a like-kind exchange:

Accepted Answer

A)   Includes the holding period of the old asset exchanged.
B)   Begins on the date of the exchange.
C)   Begins on the date of the exchange property is identified.
D)  Begins up to 180 days prior to the exchange.

Exam 12: Special Property Transactions

Lee sells equipment (basis $10,000) to related party, Lee Construction Inc., for $6,000. The $4,000 loss is:

If one spouse sells a home and excludes the gain on the sale, the gain on the sale of a residence by the other spouse is:

Laverne exchanges a rental beach house with an adjusted basis of $400,000 and fair market value of $320,000 for a mini-storage building with a fair market value of $200,000 plus $120,000 cash. What is the recognized gain or loss on the exchange and the basis of the mini-storage building?

A wash sale occurs when a taxpayer sells stock or securities at a loss and, within a period of 60 days before or 60 days after the sale, the taxpayer acquires substantially identical stock or securities.

Dr. and Mrs. Spankle purchased a residence on January 12, 2011, for $250,000. On May 15, 2015, they sold the residence for $360,000, and paid selling expenses of $18,000. They purchased a new home for $354,000. Determine the Spankles' realized and recognized gain.

The installment method cannot be used to report the gain on which of the following assets?

Jasmine sold land for $250,000 in 2015. The land had a basis of $118,000 and she incurred selling expenses of $10,000. Jasmine received $50,000 cash down in 2015 and will receive five additional annual payments of $40,000 each. What is Jasmine's gross profit percentage on the sale?

To qualify for the IRC Section 121 exclusion of gain on the sale of a residence, the taxpayer must have lived in the home for a continuous two-year period.

If married taxpayers live in their personal residence for more than two years, the couple can exclude a maximum of $250,000 on the gain from the sale of the residence.

In what instances, concerning involuntary conversions, must a taxpayer file an amended tax return (Form 1040X) ?

Raymond and Susan are married and 55 years old. They sell their personal residence for $850,000 cash. They purchased the house fifteen years ago for $200,000. What is the amount of gain that Raymond and Susan should recognize on the sale?

Raymond exchanges a rental lake house with an adjusted basis of $200,000 and fair market value of $320,000 for a rental beach house with a fair market value of $290,000 and $30,000 cash. What are the recognized gain or loss and the basis of the beach house?

Depreciation recapture on an asset sold using the installment method is recognized ratably as payments are received.

The exchange of a 5-year class asset for a 7-year class asset would not qualify for "like-kind" treatment.

The state condemned Cassidy's land on November 25, 2015. The land has a $400,000 basis. Cassidy received insurance proceeds of $610,000 on January 27, 2016. Cassidy has until what date to defer the gain under the involuntary conversion rules?

The holding period of property received in a like-kind exchange: