Question 1

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?

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 2

Risa exchanges an office building with a $600,000 adjusted basis for an apartment building with a $1,000,000 FMV and $200,000 of marketable securities.The other party indicates he had paid $175,000 for the securities a year earlier.What is Risa's basis for the securities?

Accepted Answer

The answer of Risa exchanges an office building with a...

Question 3

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?

Accepted Answer

The recognized gain is equal to the realized gain minus any deferred gain. The realized gain is the difference between the fair market value of the property received and the adjusted basis of the property given up. In this case, the realized gain is:

$80,000 (FMV of acquired land) - $60,000 (adjusted basis of surrendered land) = $20,000

However, because the motorcycle is for personal use, it is not considered like-kind property and is therefore treated as boot. The boot received is the FMV of the motorcycle, which is $10,000. The deferred gain is:

$60,000 (adjusted basis of surrendered land) / $80,000 (FMV of acquired land) x $20,000 (realized gain) = $15,000

Therefore, the recognized gain is:

$20,000 (realized gain) - $15,000 (deferred gain) = $5,000

Since $5,000 is less than the FMV of the motorcycle received, the recognized gain is equal to the FMV of the motorcycle, which is $10,000. Therefore, the answer is B.

Question 4

Kole owns a warehouse used in his business which has an adjusted basis of $240,000 and is subject to a mortgage with an $80,000 principal balance.Kole exchanges the warehouse for land worth $320,000.In addition,he receives cash of $40,000,and the other party will assume the mortgage.What is Kole's realized gain?

Accepted Answer

The answer of Kole owns a warehouse used in his...

Question 5

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

Accepted Answer

To determine the gain recognized on a like-kind exchange, you need to compare the adjusted basis of the property given up to the fair market value of the property received. In this case, Dean had a $120,000 adjusted basis for the storage facility, but he only received $40,000 in cash and a parking lot worth $140,000. Based on the fair market value of the property received, Dean recognized a gain of $20,000 ([$40,000 + $140,000] - $120,000), which he must report as taxable income. Therefore, the correct answer is C.

Question 6

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?

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 7

Henri likes to invest in land.In a nontaxable exchange,Henri exchanges land having an adjusted basis of $8,500 and a FMV of $10,000,for a another parcel of land having a FMV of $15,000.In addition,Henri paid cash of $5,000.What is Henri's basis in the new land?

Accepted Answer

In this nontaxable exchange, the basis of the new property is the adjusted basis of the old property plus any cash paid. Therefore, Henri's basis in the new land is $8,500 + $5,000 = $13,500.

Question 8

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

Accepted Answer

To determine the gain recognized in an exchange, we need to compare the amount realized with the adjusted basis of the property being exchanged. In this case, Glen exchanged a building with a fair market value of $200,000 and an adjusted basis of $120,000 for investment land worth $150,000 plus $10,000 cash. The other party also assumed the mortgage of $40,000, which will be held for investment.

The amount realized in this exchange includes the fair market value of the investment land ($150,000) plus the cash received ($10,000) plus the mortgage assumed ($40,000), totaling $200,000.

To calculate the adjusted basis of the building being exchanged, we need to start with Glen's original basis of $120,000 and adjust for any improvements or depreciation taken. Since no additional information is given about improvements or depreciation, we can assume that the adjusted basis remains at $120,000.

Therefore, Glen's realized gain is $200,000 (amount realized) minus $120,000 (adjusted basis) equals $80,000. Since the property being exchanged is business property (building) and the property received is investment property (land), this exchange is not like-kind and does not qualify for nonrecognition under Section 1031. Therefore, Glen must recognize the entire gain of $80,000. The correct answer is C.

Question 9

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

Accepted Answer

The answer of Bobbie exchanges farmland (adjusted basis $160,000)for other...

Question 10

Risa exchanges an office building with a $600,000 adjusted basis for an apartment building with a $1,000,000 FMV and $200,000 of marketable securities.What is Risa's basis for the apartment building?

Accepted Answer

The answer of Risa exchanges an office building with a...

Question 11

Yael exchanges an office building worth $150,000 for investment land worth $175,000.Yael also transferred stock worth $25,000 to the other party.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?

Accepted Answer

The answer of Yael exchanges an office building worth $150,000...

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

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

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

Accepted Answer

No gain or loss is recognized because the exchange is like-kind.

Question 14

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

Accepted Answer

This statement is not true. A loss is not always recognized if the taxpayer transfers non-like-kind personal-use property in an otherwise like-kind exchange. If the taxpayer receives boot (cash or other non-like-kind property) in addition to the like-kind property, then the recognized loss is limited to the lesser of the realized loss or the boot received. If no boot is received, then no loss is recognized.

Question 15

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

Accepted Answer

The answer of Daniella exchanges business land with a $100,000...

Question 16

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

Accepted Answer

Jason's basis in the land received is calculated as the basis of the warehouse ($120,000) minus the mortgage assumed by the other party ($40,000) plus the cash received ($10,000), resulting in $120,000.

Question 17

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

Accepted Answer

The gain recognized is the difference between the FMV of the warehouse ($400,000) and the adjusted basis of the land ($260,000) plus the cash paid ($20,000). The adjusted basis of the land is increased by the cash paid because the cash is "boot" that is treated as additional consideration received in the exchange. Therefore, the gain recognized is $400,000 - ($260,000 + $20,000) = $120,000.

Question 18

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?

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 19

Eduardo owns land held for investment purposes that has a basis of $250,000.He exchanges the land,plus $40,000 of cash,for a warehouse he will hold as rental property.The warehouse is worth $410,000,but is subject to a mortgage of $70,000 which Eduardo will assume.The gain realized by Eduardo is

Accepted Answer

The gain realized is calculated as the fair market value of the property received ($410,000) plus the mortgage assumed ($70,000), minus the basis of the land given up ($250,000) and the cash paid ($40,000). This results in a gain of $50,000.

Question 20

Ella needs to move her business to a larger facility.She projects a large realized gain on the sale of the old building and prefers not to pay tax on the gain because the sales proceeds are needed to finance the purchase of the new building.In the circumstances,a direct two- or three-party like-kind exchange is not feasible.Ella's sale can still qualify for like-kind treatment if she arranges an appropriate nonsimultaneous exchange.Among other criteria,after the transfer of the old building,the replacement property must be

Accepted Answer

The replacement property must be identified within 45 days and received within 180 days in order to qualify for like-kind treatment in a nonsimultaneous exchange. Option B is incorrect because there is no requirement for the replacement property to be received by year-end. Option C has a longer identification period (60 days) but still has the same requirement for the replacement property to be received within 180 days. Option D has a longer identification period (90 days) and no requirement for the replacement property to be received within 180 days.

Quiz 28: Property Transactions: Nontaxable Exchanges