Question 1

A owns a ranch in Wyoming,which B offers to purchase.A is not willing to sell the ranch but is willing to exchange the ranch for an apartment complex in Louisiana.The complex is available for sale.B purchases the apartment complex in Louisiana from C and transfers it to A in exchange for A's ranch.The ranch and the complex each have a $1,000,000 fair market value.Which of the following is true?
A)The transaction qualifies as a like-kind exchange for B but not for A.
B)The transaction qualifies as a like-kind exchange for both B and A.
C)The transaction qualifies as a like-kind exchange for A but not for B.
D)The transaction does not qualify as a like-kind exchange for either B or A.

Accepted Answer

The answer of A owns a ranch in Wyoming,which B...

Question 2

Pamela owns land for investment purposes.The land is worth $300,000 (basis of $260,000 to Pamela).Pamela exchanges the land,plus $20,000 cash,for a warehouse to be used in her business.The FMV of the warehouse is $400,000,but the warehouse is subject to a mortgage of $80,000,which is assumed by Pamela.Pamela must recognize a gain of
A)$ 0.
B)$ 40,000.
C)$ 120,000.
D)$ 140,000.

Accepted Answer

The answer of Pamela owns land for investment purposes.The land...

Question 3

Jason owns a warehouse that is used in business.The FMV of the warehouse is $200,000 (basis $120,000),and the warehouse is subject to a mortgage of $40,000.Jason exchanges the warehouse for land valued at $150,000.The other party also pays him $10,000 cash and assumes the mortgage on the warehouse.Jason's basis in the land received will be
A)$120,000.
B)$150,000.
C)$180,000.
D)$200,000.

Accepted Answer

The answer of Jason owns a warehouse that is used...

Question 4

Landry exchanged land with an adjusted basis of $50,000 for another parcel of land worth $35,000 plus $10,000 of cash.Landry held the original land for investment purposes and will do the same with the new parcel.Due to the exchange,Landry will recognize
A)$10,000 gain.
B)$5,000 gain.
C)$5,000 loss.
D)$0.

Accepted Answer

The answer of Landry exchanged land with an adjusted basis...

Question 5

Bob owns a warehouse that is used in business while Rebecca owns land.Bob exchanges the warehouse for the land,which will be held for investment.The FMV of the warehouse is $440,000 (basis $240,000),but the warehouse is subject to a mortgage of $80,000,which is assumed by Rebecca.Bob receives $40,000 cash and the land,which has a FMV of $320,000.Bob realizes a gain (loss)on the exchange of
A)$80,000.
B)$120,000.
C)$190,000.
D)$200,000.

Accepted Answer

The answer of Bob owns a warehouse that is used...

Question 6

In a nontaxable exchange,Henri traded in a truck having an adjusted basis of $8,500 and a FMV of $10,000,for a new truck having a FMV of $15,000.In addition,Henri paid cash of $5,000.What is Henri's basis in the new truck?
A)$5,000
B)$8,500
C)$13,500
D)$15,000

Accepted Answer

In a non-taxable exchange, the basis of the new property received is the same as the basis of the old property exchanged, adjusted for any cash paid or received. In this case, Henri traded in a truck with an adjusted basis of $8,500, so the basis of the new truck is also $8,500. However, Henri also paid cash of $5,000, which is added to the basis, giving a total basis of $13,500 ($8,500 + $5,000 = $13,500). Therefore, the correct answer is C.

Question 7

Rosa exchanges business equipment with a $60,000 adjusted basis for a like-kind piece of equipment with a $100,000 FMV and $20,000 of marketable securities.What is Rosa's basis for the new equipment?
A)$60,000
B)$80,000
C)$100,000
D)$120,000

Accepted Answer

A)This transaction qualifies as a like-kind exchange with boot received.$60,000 basis of property exchanged - $20,000 boot received + $20,000 gain recognized = $60,000

Question 8

Kai owns an apartment building held for investment purposes.The apartment building is worth $500,000,although it is subject to a mortgage of $100,000.Kai's basis in the apartment building is $380,000.Kai exchanges the apartment building for an office building.The office building has an FMV of $350,000.Kai receives $50,000 cash in addition to receiving the office building,and the other party assumes the apartment building mortgage.What is Kai's recognized gain on this exchange?
A)$0
B)$50,000
C)$120,000
D)$150,000

Accepted Answer

To calculate Kai's recognized gain, we need to compare the FMV of the property given up ($500,000) to Kai's adjusted basis in the property ($380,000). The difference is $120,000, which represents Kai's potential gain on the exchange. However, Kai receives $50,000 cash in addition to the office building, which reduces the potential gain to $70,000. Since Kai is not receiving any other property or services in the exchange, this gain is recognized and taxable. Therefore, the answer is choice C, $120,000.

Question 9

All of the following are true except:
A)A nonsimultaneous exchange may never qualify as a like-kind exchange.
B)Nonrecognition of gains and losses is mandatory if the exchange is a like-kind exchange.
C)A loss may be recognized on non-like-kind property (boot)if the taxpayer transfers the boot in an otherwise like-kind exchange.
D)The holding period of like-kind property received includes the holding period of the property exchanged.

Accepted Answer

This statement is false. A nonsimultaneous exchange, also known as a deferred exchange, can qualify as a like-kind exchange if it meets certain requirements under Section 1031 of the Internal Revenue Code.

Question 10

If there is a like-kind exchange of property between related parties,how long do they have to wait to dispose of the property received in order to avoid having to recognize any gain on the exchange?
A)6 months
B)1 year
C)2 years
D)no waiting period

Accepted Answer

When there is a like-kind exchange of property between related parties, the party receiving the property must hold onto it for a period of at least 2 years in order to avoid having to recognize any gain on the exchange.

Question 11

Glen owns a building that is used in business.The building is worth $200,000,but is subject to a mortgage of $40,000.Glen's basis in the building is $120,000.Glen exchanges the building for investment land worth $150,000 plus $10,000 cash.In addition,the other party assumes the mortgage which will be held for investment.Glen must recognize a gain of
A)$0.
B)$10,000.
C)$50,000.
D)$80,000.

Accepted Answer

In a like-kind exchange, any gain or loss is not recognized until the property received in the exchange is sold or otherwise disposed of. In this case, Glen's basis in the building is $120,000, but he is exchanging it for investment land worth $150,000 plus $10,000 cash. Therefore, he has a realized gain of $40,000 ($150,000 + $10,000 - $120,000).

However, the other party is assuming the mortgage of $40,000, which is held for investment. Since the mortgage assumption is considered part of the exchange, it reduces Glen's gain. Therefore, Glen must recognize a gain of $50,000 ($40,000 mortgage assumption + $10,000 cash received).

The answer is C because Glen must recognize a gain of $50,000.

Question 12

Gena exchanges land held as an investment with a $60,000 basis for other land with a $80,000 FMV and a motorcycle with a $10,000 FMV.The acquired land is to be held for investment and the motorcycle is for personal use.What is the amount of recognized gain?
A)$0
B)$10,000
C)$20,000
D)$30,000

Accepted Answer

When exchanging property, any personal property received is not tax-deferred. Therefore, the motorcycle with a FMV of $10,000 is considered boot and triggers recognized gain. The recognized gain is calculated as the lesser of the realized gain or the amount of boot received. In this case, the realized gain is $80,000 (FMV of acquired land) - $60,000 (basis of relinquished land) = $20,000. Since the motorcycle boot is less than the realized gain, the recognized gain is $10,000 (the FMV of the motorcycle boot).

Question 13

Rolf exchanges an office building worth $150,000 for investment land worth $175,000.He also provided stock worth $25,000.Rolf's adjusted basis in the building and stock is $130,000 and $11,000,respectively.How much gain will Rolf recognize on the exchange?
A)$0
B)$14,000
C)$20,000
D)$34,000

Accepted Answer

To calculate the gain recognized on the exchange, we need to compare the total realized value with the adjusted basis.

Total realized value = $175,000 (value of investment land) + $25,000 (value of stock) = $200,000

Adjusted basis = $130,000 (adjusted basis in office building) + $11,000 (adjusted basis in stock) = $141,000

Therefore, the gain recognized on the exchange is:

$200,000 - $141,000 = $59,000

However, since Rolf is not receiving any cash in the exchange, the amount of gain recognized is limited to the lesser of the realized gain or the boot received, which in this case is the stock worth $25,000.

Therefore, the gain recognized on the exchange is $25,000 - $11,000 (adjusted basis of stock) = $14,000.

The answer is B, $14,000.

Question 14

Laurie owns land held for investment.The land's FMV is $150,000.Laurie's basis in the land is $130,000.Laurie exchanges the land,plus $20,000 of cash,for a warehouse owned by Trey.The warehouse is worth $210,000,but is subject to a mortgage of $40,000 which Laurie will assume.Trey's basis in the warehouse is $120,000.Laurie's basis in the warehouse received will be
A)$150,000.
B)$170,000.
C)$190,000.
D)$210,000.

Accepted Answer

To calculate the basis in the warehouse received, we need to start with the adjusted basis of the property given up (the land) and adjust it for any cash paid and liabilities assumed.

Adjusted basis of land = $130,000 
Cash paid = $20,000 
Liabilities assumed = $40,000

Total basis in warehouse received = adjusted basis of land + cash paid + liabilities assumed 
Total basis in warehouse received = $130,000 + $20,000 + $40,000 
Total basis in warehouse received = $190,000

Question 15

Bobbie exchanges business equipment (adjusted basis $160,000)for other business equipment that has a FMV of $140,000.Bobbie also receives $30,000 cash.Bobbie's basis in the new equipment is
A)$130,000.
B)$140,000.
C)$160,000.
D)$170,000.

Accepted Answer

B)This transaction qualifies as a like-kind exchange with boot received.The gain realized is $170,000 (FMV of new equipment plus $30,000 cash)- $160,000 adjusted basis of old equipment = $10,000.She must recognize gain to the extent of the lesser of the boot received or the realized gain so the full $10,000 realized gain is recognized.The basis of the new equipment is [$160,000 (old basis)- 30,000 (boot received)+ 10,000 (gain recognized)] = $140,000 or the FMV of property received less unrecognized gain of $0 = $140,000.

Question 16

Emily owns land for investment purposes that has a FMV of $300,000 (basis of $260,000).She exchanges the land,plus $40,000 cash,for a warehouse to be used in her business.The warehouse is worth $420,000,but is subject to a mortgage of $80,000 which Emily will assume.The gain realized by Emily on the exchange is
A)$40,000.
B)$80,000.
C)$120,000.
D)$160,000.

Accepted Answer

A)The taxpayer receives a warehouse worth $420,000,but in exchange gives up land with an adjusted basis of $260,000 and $40,000 of cash and assumes an $80,000 liability,resulting in the $40,000 realized gain.

Question 17

Yael exchanges an office building worth $150,000 for investment land worth $175,000.He also provided stock worth $25,000.Yael's adjusted basis in the building and stock is $180,000 and $11,000,respectively.How much gain or loss will Yael recognize on the exchange?
A)$0
B)($30,000)
C)($16,000)
D)$14,000

Accepted Answer

To calculate the gain or loss recognized on the exchange, we need to compare the total value of both sides of the exchange. The investment land and stock provided have a total value of $200,000 ($175,000 + $25,000). Yael's adjusted basis in the building and stock is $191,000 ($180,000 + $11,000). Therefore, Yael will recognize a gain of $9,000 ($200,000 - $191,000), which is taxable. So, the correct answer is D.

Question 18

Which of the following statements is not true with regard to like-kind exchanges?
A)Nonrecognition of gains and losses is mandatory if the exchange is a like-kind exchange.
B)The holding period of like-kind property received includes the holding period of the property exchanged.
C)A loss is always recognized if the taxpayer transfers non-like-kind personal use property (e.g.a personal use car)in an otherwise like-kind exchange.
D)The basis of property received in an exchange is equal to the basis of the property exchanged less the boot received plus the gain recognized and less any loss recognized.

Accepted Answer

This statement is not true. If non-like-kind personal use property is transferred in an otherwise like-kind exchange, any loss recognized will not be deductible. However, in certain circumstances, a gain may be recognized.

Question 19

Daniella exchanges business equipment with a $100,000 adjusted basis for $10,000 cash and business equipment with a $96,000 FMV.What is the amount of gain recognized on the exchange?
A)$0
B)$4,000
C)$6,000
D)$10,000

Accepted Answer

The amount realized on the exchange is $106,000 ($10,000 cash plus $96,000 FMV of the new equipment). The realized amount ($106,000) minus the adjusted basis of the equipment surrendered ($100,000) equals $6,000 of gain recognized on the exchange.

Question 20

Dean exchanges business equipment with a $120,000 adjusted basis for $40,000 cash and business equipment with a $140,000 FMV.What is the amount of gain which Dean recognizes on the exchange?
A)$0
B)$20,000
C)$40,000
D)$60,000

Accepted Answer

C)This transaction qualifies as a like-kind exchange with boot received.Amount Realized ($40,000 + $140,000)- Adjusted Basis ($120,000)= $60,000 gain realized.Gain is recognized to the extent of boot received-$40,000.

Quiz 12: Property Transactions: Nontaxable Exchanges

Landry exchanged land with an adjusted basis of $50,000 for another parcel of land worth $35,000 plus $10,000 of cash.Landry held the original land for investment purposes and will do the same with the new parcel.Due to the exchange,Landry will recognize

In a nontaxable exchange,Henri traded in a truck having an adjusted basis of $8,500 and a FMV of $10,000,for a new truck having a FMV of $15,000.In addition,Henri paid cash of $5,000.What is Henri's basis in the new truck?

Rosa exchanges business equipment with a $60,000 adjusted basis for a like-kind piece of equipment with a $100,000 FMV and $20,000 of marketable securities.What is Rosa's basis for the new equipment?

All of the following are true except:

If there is a like-kind exchange of property between related parties,how long do they have to wait to dispose of the property received in order to avoid having to recognize any gain on the exchange?

Gena exchanges land held as an investment with a $60,000 basis for other land with a $80,000 FMV and a motorcycle with a $10,000 FMV.The acquired land is to be held for investment and the motorcycle is for personal use.What is the amount of recognized gain?

Rolf exchanges an office building worth $150,000 for investment land worth $175,000.He also provided stock worth $25,000.Rolf's adjusted basis in the building and stock is $130,000 and $11,000,respectively.How much gain will Rolf recognize on the exchange?

Bobbie exchanges business equipment (adjusted basis $160,000) for other business equipment that has a FMV of $140,000.Bobbie also receives $30,000 cash.Bobbie's basis in the new equipment is

Yael exchanges an office building worth $150,000 for investment land worth $175,000.He also provided stock worth $25,000.Yael's adjusted basis in the building and stock is $180,000 and $11,000,respectively.How much gain or loss will Yael recognize on the exchange?

Which of the following statements is not true with regard to like-kind exchanges?

Daniella exchanges business equipment with a $100,000 adjusted basis for $10,000 cash and business equipment with a $96,000 FMV.What is the amount of gain recognized on the exchange?

Dean exchanges business equipment with a $120,000 adjusted basis for $40,000 cash and business equipment with a $140,000 FMV.What is the amount of gain which Dean recognizes on the exchange?