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Exam 15: Property Transactions Nontaxable Exchanges

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Question 1

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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.

A) True
B) False

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Question 2

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Casualty losses and condemnation losses on the involuntary conversion of a personal residence receive the same tax treatment.

A) True
B) False

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Question 3

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

Dennis,a calendar year taxpayer,owns a warehouse (adjusted basis of $190,000)which is destroyed by a tornado in October 2016.He receives insurance proceeds of $250,000 in January 2017.If before 2020,Dennis replaces the warehouse with another warehouse costing at least $250,000,he can elect to postpone the recognition of any realized gain.

Kate exchanges land held as an investment for land and a building owned by Clark,to be used in her business.If Clark is Kate's father,her realized gain of $150,000 must be recognized because they are related parties.

Eric and Faye,who are married,jointly own a house in which they have resided for the past 17 years.They sell the house for $375,000 with realtor's fees of $10,000.Their adjusted basis for the house is $80,000.Since they are in their retirement years,they plan on moving around the country and renting.What is their recognized gain on the sale of the residence if they use the § 121 exclusion (exclusion of gain on sale of principal residence) and if they elect to forgo the § 121 exclusion? ​ With exclusion Elect to forgo

Fran was transferred from Phoenix to Atlanta.She sold her Phoenix residence (adjusted basis of $250,000) for a realized loss of $50,000 and purchased a new residence in Atlanta for $375,000.Fran had owned and lived in the Phoenix residence for 6 years.What is Fran's recognized gain or loss on the sale of the Phoenix residence and her basis for the residence in Atlanta?

At a particular point in time,a taxpayer can have two principal residences for § 121 exclusion purposes.

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).

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

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?

The surrender of depreciated boot (fair market value is less than adjusted basis)in a like-kind exchange can result in the recognition of loss.

Gains and losses on nontaxable exchanges are deferred because the tax law recognizes that nontaxable exchanges result in a change in the substance but not the form of the taxpayer's relative economic position.

Jared,a fiscal year taxpayer with a August 31st year-end,owns an office building (adjusted basis of $800,000) that was destroyed by fire on December 24,2016.If the insurance settlement was $950,000 (received March 1,2017) ,what is the latest date that Jared can replace the office building in order to qualify for § 1033 nonrecognition of gain?

If the taxpayer qualifies under § 1033 (nonrecognition of gain from an involuntary conversion) and the amount reinvested in replacement property exceeds the amount realized,the basis of the replacement property is:

Matt,who is single,sells his principal residence,which he has owned and occupied for 5 years,for $435,000.The adjusted basis is $140,000 and the selling expenses are $20,000.Three days after the sale he purchases another residence for $385,000.Matt's recognized gain is $25,000 and his basis for the new residence is $385,000.

Carl sells his principal residence,which has an adjusted basis of $150,000 for $200,000.He incurs selling expenses of $20,000 and legal fees of $2,000.He had purchased another residence one month prior to the sale for $380,000.What is the recognized gain or loss and the basis of the replacement residence if the taxpayer elects to forgo the § 121 exclusion (exclusion of gain on sale of principal residence) ?

Melissa,age 58,marries Arnold,age 50,on June 1,2016.Melissa decides to sell her principal residence on August 1,2016,which she has owned and occupied for the past 30 years.Arnold has never owned a house.However,while he was married to Kelly who died 6 months prior to his marriage to Melissa,Kelly used the § 121 election on the sale of her residence in January 2014 to reduce her realized gain from $123,000 to $0.Kelly used the sales proceeds to pay off Arnold's gambling debts.Can Melissa elect the § 121 exclusion on the sale of her residence? What is the maximum § 121 exclusion available to Melissa and Arnold if they file a joint return?

Sidney,a calendar year taxpayer,owns a building (adjusted basis $450,000)in Columbus,OH,in which he conducts his retail computer sales business.The building is destroyed by fire on December 12,2016,and two weeks later he receives insurance proceeds of $600,000.Due to family ties,Sidney decides to move to Columbia,SC.He reinvests all of the insurance proceeds in a building in Columbia where he opens a retail computer sales business on April 2,2017.By electing § 1033,Sidney has no recognized gain and a basis in the new building of $450,000 ($600,000 cost - $150,000 postponed gain).

The holding period of replacement property where the election to postpone gain is made includes the holding period of the involuntarily converted property.