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Exam 7: Property Transactions: Basis, Gain and Loss, and Nontaxable Exchanges

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Question 111

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In a casualty or theft, the basis of property involved is reduced by the amount of insurance proceeds received and by any resulting recognized loss.

A) True
B) False

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Question 112

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Which of the following statements is correct for a § 1033 involuntary conversion of an office building which is destroyed by fire?

A) An election can be made to postpone gain on a § 1033 involuntary conversion only if the proceeds received are reinvested in qualifying property no later than two years after the end of the tax year in which a proceeds inflow is received that is large enough to produce a realized gain.
B) The postponement of realized gain in a § 1033 involuntary conversion is elective.
C) The functional use test is satisfied if a business warehouse is replaced with another business warehouse.
D) The taxpayer use test is satisfied if a shopping mall rented to tenants is replaced with an office building to be rented to tenants.
E) All of the above are correct.

F) B) and E)
G) A) and B)

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Question 113

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Marilyn owns 100% of the stock of Lilac, Inc., with an adjusted basis of $45,000. She receives a cash distribution of $160,000 from Lilac when its earnings and profits are $90,000. a.What is Marilyn's dividend income? b.What is Marilyn's recognized gain or loss? c.What is Marilyn's adjusted basis for her stock after the distribution?

If boot is received in a § 1031 like-kind exchange that results in some of the realized gain being recognized, the holding period for both the like-kind property and the boot received begins on the date of the exchange.

On February 1, Karin purchases real estate for $375,000. The annual property taxes of $5,000 are payable on December 31. Realizing that she will pay the property taxes for the entire year, Karin remits $374,575 to the seller at closing. Karin's adjusted basis for the real estate is:

Discuss the treatment of realized gains from involuntary conversions.

On September 18, 2016, Jerry received land and a building from Ted as a gift. Ted had purchased the land and building on March 5, 2013, and his adjusted basis and the fair market value at the date of the gift were as follows: Ted paid no gift tax on the transfer to Jerry. a.​Determine Jerry's adjusted basis and holding period for the land and building. b.​Assume instead that the FMV of the land was $89,000 and the FMV of the building was $60,000. Determine Jerry's adjusted basis and holding period for the land and building.

An exchange of two items of personal property (personalty) that belong to different general business asset classes qualifies for nonrecognition under § 1031 as long as both properties are used in the taxpayer's trade or business.

a.Orange Corporation exchanges a warehouse located in Michigan (adjusted basis of $560,000) for a warehouse located in Ohio (adjusted basis of $450,000; fair market value of $525,000). Indicate the amount of gain or loss that is recognized by Orange Corporation on the exchange, and the basis of the warehouse acquired.​ b.Assume that in addition to the warehouse Orange Corporation also received $100,000 in cash. Indicate the amount of gain or loss that is recognized by Orange Corporation on the exchange, and the basis of the warehouse acquired. b. change if instead of receiving $100,000 in cash, the other party assumed Orange's $100,000 mortgage on the Michigan warehouse? c.How would your answer in

Mona purchased a business from Judah for $1,000,000. Judah's records and an appraiser provided her with the following information regarding the assets purchased: ​ What is Mona's adjusted basis for the land, building, and equipment?

Maud exchanges a rental house at the beach with an adjusted basis of $225,000 and a fair market value of $200,000 for a rental house at the mountains with a fair market value of $180,000 and cash of $20,000. What is the recognized gain or loss?

A realized gain on an indirect (conversion into money) involuntary conversion of business property can be postponed, but a realized loss on an indirect involuntary conversion of business property cannot be postponed.

Molly exchanges a small machine (adjusted basis of $85,000; fair market value of $78,000) used in her business and investment land (adjusted basis of $10,000; fair market value of $15,000) for a large machine (fair market value of $93,000) to be used in her business in a like-kind exchange. What is Molly's recognized gain or loss?

Boyd acquired tax-exempt bonds for $430,000 in December 2016. The bonds, which mature in December 2021, have a maturity value of $400,000. Boyd does not make any elections regarding the amortization of the bond premium. Determine the tax consequences to Boyd when he redeems the bonds in December 2021.

Marge purchases the Kentwood Krackers, a AAA level baseball team, for $1.5 million. The appraised values of the identified assets are as follows: The Krackers have won the pennant for the past two years. Determine Marge's adjusted basis for the assets of the Kentwood Krackers.

Peggy uses a delivery van in her business. The adjusted basis is $39,000, and the fair market value is $34,000. The delivery van is stolen and Peggy receives insurance proceeds of $34,000. Determine Peggy's realized and recognized gain or loss.

The basis for depreciation on depreciable gift property received is the donor's adjusted basis of the property at the date of the gift (assuming no gift taxes are paid). The rule applies regardless of whether the fair market value at the date of the gift is greater than or less than the donor's adjusted basis.

If the alternate valuation date is elected by the executor in 2016, the total basis of inherited property will be more than what it would have been if the primary valuation date and amount had been used.

Ken is considering two options for selling land for which he has an adjusted basis of $100,000 and on which there is a mortgage of $80,000. Under the first option, Ken will sell the land for $225,000 with a stipulation in the sales contract that he liquidate the mortgage before the sale is complete. Under the second option, Ken will sell the land for $145,000 and the buyer will assume the mortgage. Calculate Ken's recognized gain under both options.

For the following exchanges, indicate which qualify as like-kind property. a. Inventory of a sporting goods store in Charleston for inventory of an appliance store in Savannah. b. Inventory of a ladies dress shop in Cleveland for inventory of a ladies dress shop in Richmond. c. Investment land in Virginia Beach for office building in Williamsburg. d. Used automobile used in a business for a new automobile to be used in the business. e. Investment land in Paris for investment land in San Francisco. f. Shares of Texaco stock for shares of Exxon Mobil stock.