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Exam 15: Property Transactions: Nontaxable Exchanges

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Question 31

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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?

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

F) B) and D)
G) B) and C)

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Question 32

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Define qualified small business stock under § 1045.

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Qualified small business stock is stock ...

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Question 33

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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.

Gabe's office building (adjusted basis of $430,000; fair market value of $500,000)is destroyed by a hurricane.Due to a 20% co-insurance clause,Gabe receives insurance proceeds of only $400,000.If Gabe purchases an office building for $500,000 one month later,its adjusted basis is $530,000 ($500,000 cost + $30,000 postponed loss).

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.

Milt's building which houses his retail sporting goods store is destroyed by a flood.Sandra's warehouse which she is leasing to Milt to store the inventory of his business also is destroyed in the same flood.Both Milt and Sandra receive insurance proceeds that result in a realized gain.Sandra will have less flexibility than Milt in the type of building in which she can invest the proceeds and qualify for postponement treatment under § 1033 (nonrecognition of gain from an involuntary conversion).

Discuss the treatment of losses from involuntary conversions.

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?

Pierce exchanges an asset (adjusted basis of $14,000; fair market value of $18,000)for another asset (fair market value of $15,000).In addition,he receives cash of $3,000.If the exchange qualifies as a like-kind exchange,his recognized gain is $3,000 and his adjusted basis for the property received is $17,000 ($14,000 + $3,000 recognized gain).

Kitty,who is single,sells her principal residence,which she has owned and occupied for 8 years,for $375,000.The adjusted basis is $64,000,selling expenses are $22,000,and repairs to make the house more marketable are $7,000.Her recognized gain is $32,000.

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

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?

Wyatt sells his principal residence in December 2012 and qualifies for the § 121 exclusion.He sells another principal residence in October 2013.Under certain circumstances Wyatt can qualify for the § 121 exclusion on the sale of the second residence.

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.

In a nontaxable exchange,recognition is postponed.In a tax-free transaction,nonrecognition is permanent.

Louis owns a condominium in New Orleans which has been his principal residence for 12 years.He wants to be near Lake Ponchartrain since he enjoys water activities.Therefore,he sells the condominium.His original intent was to purchase a house in New Orleans near the lake.However,the cost of such properties far exceeded his sales proceeds.He was able to purchase a house on the lake in Covington,which is located across the causeway.He invested all of his sales proceeds in the Covington house.After two months of commuting over an hour to and from work each day,he decides to rent an efficiency apartment in New Orleans near his office.He spends the weekends and vacations at his home in Covington.

Which of the following types of transactions qualify for nonrecognition treatment?

Virginia,who is single,sells her principal residence (adjusted basis of $150,000) on January 5,2012,for $380,000.She has owned and occupied it as her principal residence for 20 years.She incurs a realtor's commission of $22,000 and legal fees of $5,000.On January 3,2012,Virginia purchases a townhouse for $300,000 and uses it as her principal residence.Because it was not near a convenience store,she sells the townhouse on December 20,2012,for $330,000.She incurs a realtor's commission of $18,000 and legal fees of $4,000.She buys a house on December 1,2012,for $250,000 and uses it as her principal residence.What is Virginia's recognized gain on the sale of each house and her adjusted basis for the house purchased on December 1,2012?

What kinds of property do not qualify under the like-kind provisions?

Melvin receives stock as a gift from his uncle.No gift tax is paid.The adjusted basis of the stock is $30,000 and the fair market value is $38,000.Melvin trades the stock for bonds with a fair market value of $35,000 and $3,000 cash.What is his recognized gain and the basis for the bonds?