Question 1

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

If there is a like-kind exchange of property between related parties, they must wait at least 2 years to dispose of the property received in order to avoid having to recognize any gain on the exchange.

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...

Question 3

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 nontaxable exchange, the basis of the new property is determined by allocating the basis of the old property plus any additional cash paid among the new property and any other property received. In this case, Henri's basis in the new truck is calculated as follows:
Basis of old truck ($8,500) + Cash paid ($5,000) = Total basis available ($13,500)
Total basis available ($13,500) x (FMV of new truck ($15,000) / Total FMV of all property received ($25,000)) = Henri's basis in the new truck ($8,100)
Therefore, the correct answer is choice C, $13,500.

Question 4

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 recognized gain or loss is calculated by subtracting the basis of the property given up from the fair market value of the property received. In this case, the fair market value of the property received is $80,000 + $10,000 = $90,000. The basis of the property given up is $60,000. Therefore, the recognized gain is $90,000 - $60,000 = $30,000. However, because the motorcycle received is for personal use, it is not considered part of the exchange for tax purposes. Therefore, the recognized gain is only $30,000 - $10,000 (the value of the motorcycle) = $20,000.

Question 5

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 6

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 7

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

The gain is calculated as follows:
Fair market value of investment land + cash received - mortgage assumed - adjusted basis of the building = $150,000 + $10,000 - $40,000 - $120,000 = $0
However, because the investment land received is different in nature from the business building given up, this exchange falls under section 1031 of the Internal Revenue Code. This allows for a non-recognition of gain or loss for like-kind property exchanges held for either productive use in a trade or business or for investment. Since the investment land received will be held for investment, the exchange qualifies under section 1031 and no gain or loss will be recognized. Therefore, the answer is C, $50,000.

Question 8

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.

Question 9

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

When Bobbie exchanges business equipment for other business equipment and cash, it is considered a like-kind exchange under Section 1031 of the Internal Revenue Code. In this case, the FMV of the new equipment received ($140,000) is less than the adjusted basis of the old equipment exchanged ($160,000), so Bobbie will recognize a loss of $20,000 ($160,000 - $140,000). The cash received ($30,000) is also considered boot and will be taxable.

The basis in the new equipment received will be equal to the adjusted basis of the old equipment exchanged ($160,000) reduced by the loss recognized ($20,000) and increased by the amount of boot received ($30,000), for a total basis of $170,000. However, the basis of the new equipment cannot exceed its FMV ($140,000) under Section 1031. Therefore, the basis in the new equipment will be equal to its FMV of $140,000.

Question 10

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 11

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 12

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 figure out Laurie's new basis in the warehouse received, we need to calculate the realized gain and the recognized gain.

Realized gain = Fair Market Value (FMV) of warehouse received ($210,000) - Adjusted Basis of land given up ($130,000) - Cash paid ($20,000) = $60,000

Recognized gain = Realized gain ($60,000) - Mortgage assumed by Laurie ($40,000) = $20,000

Laurie's new basis in the warehouse received = Trey's basis in the warehouse ($120,000) + recognized gain ($20,000) = $140,000

Therefore, the correct answer is C) $190,000, which is the sum of the mortgage assumed ($40,000) and Laurie's new basis in the warehouse received ($140,000).

Question 13

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

A loss is not always recognized if the taxpayer transfers non-like-kind personal use property in an otherwise like-kind exchange. There are exceptions for cases where the non-like-kind property is considered incidental or de minimis.

Question 14

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 15

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 gain recognized on the exchange is the lesser of the realized gain or the boot received. The realized gain is the FMV of the equipment received ($96,000) minus the adjusted basis of the equipment given up ($100,000), which equals a realized loss of $4,000. Since Daniella is receiving $10,000 in cash (boot), the gain recognized is limited to $6,000 ($10,000 boot received - $4,000 realized loss). Therefore, the answer is C.

Question 16

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

A nonsimultaneous exchange, also known as a deferred exchange, can qualify as a like-kind exchange under certain conditions, such as the use of a qualified intermediary and complying with the 45-day and 180-day deadlines.

Question 17

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 determine the total value received by Rolf in the exchange and then subtract his adjusted basis.

The total value received by Rolf is $175,000 (value of investment land) + $25,000 (value of stock) = $200,000.

Rolf's adjusted basis is $130,000 (building) + $11,000 (stock) = $141,000.

Therefore, the gain recognized is $200,000 - $141,000 = $59,000.

However, Rolf is using a like-kind exchange, which allows him to defer recognition of the gain, meaning he recognizes $0 gain at this time. The adjusted basis of the investment land and stock will be $141,000, which is the adjusted basis of the building and stock transferred.

Question 18

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 19

Cassie owns a Rembrandt painting she acquired on June 1, 2008 as an investment. She exchanges the painting on September 5, 2014, for a Picasso sculpture and marketable securities to be held as an investment. On what date does the sculpture's holding period begin?
A)June 1, 2008
B)June 2, 2008
C)September 5, 2014
D)September 6, 2014

Accepted Answer

The answer of Cassie owns a Rembrandt painting she acquired...

Question 20

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...

Quiz 12: Property Transactions: Nontaxable Exchanges

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?

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?

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?

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?

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?

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

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?

All of the following are true except:

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?

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?

Cassie owns a Rembrandt painting she acquired on June 1, 2008 as an investment. She exchanges the painting on September 5, 2014, for a Picasso sculpture and marketable securities to be held as an investment. On what date does the sculpture's holding period begin?

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