Question 1

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?

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 2

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

D) This transaction qualifies as a like-kind exchange. As part of the exchange, Yael exchanged non-like-kind property (the stock). He will recognize the gain on the stock, but cannot recognize the loss realized on the like-kind property.

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?

Accepted Answer

C) Basis of property received = basis of property exchanged - boot received + gain recognized - loss recognized. The taxpayer exchanges a truck with an adjusted basis of $8,500 and cash of $5,000. No boot is received so no gain is recognized. The basis in the new truck is $13,500.

Question 4

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

C) Exchanges of property between related parties are not like-kind exchanges under current law if either party disposes of the property within two years of the exchange.

Question 5

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

C) Laurie will not recognize any gain on the like-kind exchange because she is not receiving any boot. Her basis in the warehouse will start with the adjusted basis of the land she transferred and will be increased by the cash she paid and the mortgage she assumes. $130,000 land adjusted basis + $20,000 cash paid + $40,000 mortgage assumed by taxpayer = $190,000.

Question 6

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

A) Like-kind property was exchanged. Pamela received no boot so none of the gain is recognized.

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?

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

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?

Accepted Answer

C) This transaction qualifies as a like-kind exchange with boot received. Amount Realized ($10,000 + $96,000) - Adjusted Basis ($100,000) = $6,000 gain realized. Gain recognized to the lesser of realized gain ($6,000) or boot received ($10,000).

Question 9

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

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 10

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

B) This transaction qualifies as a like-kind exchange with boot paid by the taxpayer. The stock exchanged by Rolf is not qualifying like-kind property so its gain must be recognized in the normal manner.

Question 11

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

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 12

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

D) This transaction qualifies as a like-kind exchange with boot received. A loss is realized on the exchange ($45,000 amount realized less $50,000 adjusted basis). The receipt of boot results in gain recognition only when gain has been realized on the transaction. There is no recognition in the case of loss.

Question 13

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

C) The total value received in the exchange is $500,000 (the sum of the $350,000 FMV of the office building plus the $100,000 debt relief and the cash of $50,000). The realized gain is $120,000 ($500,000 - $380,000 adjusted basis). The taxpayer receives $150,000 of boot (debt relief and cash). She will recognize $120,000, the lesser of the $150,000 of boot and the $120,000 realized gain.

Question 14

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

A) A nonsimultaneous exchange is treated as a like-kind exchange if the exchange is completed within a specified time period. The property to be received in the exchange must be identified within 45 days after the date of the transfer of the property relinquished in the exchange. The replacement property must be received within the earlier of 180 days after the date the taxpayer transfers the property relinquished in the exchange or the due date for filing a return (including extensions) for the year in which the transfer of the relinquished property occurs.

Question 15

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

B) This transaction qualifies as a like-kind exchange with boot received. The realized gain is $30,000 [($80,000 + $10,000) amount realized - $60,000 adjusted basis]. Gain is recognized to the extent of the lesser of gain realized or boot received-the motorcycle ($10,000) is non-like-kind property and is considered boot.

Question 16

Which of the following statements with respect to a like-kind exchange is false?

Accepted Answer

D) Sale of property and subsequent purchase of like-kind property only qualifies if the two transactions are interdependent.

Question 17

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

A) The total value received in the exchange is $200,000 (the sum of the $150,000 FMV of the land plus the $40,000 debt relief and the cash of $10,000). The realized gain is $80,000 ($200,000 - $120,000 adjusted basis). The taxpayer receives $50,000 of boot (debt relief and cash). He will recognize $50,000, the lesser of the $50,000 of boot and the $80,000 realized gain. The basis of the land received will be $120,000 [$120,000 (old basis) - 50,000 (boot received) + 50,000 (gain recognized)] = $120,000 or the $150,000 FMV of property received less unrecognized gain of $30,000 = $120,000.

Question 18

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?

Accepted Answer

C) The exchange is like-kind for A because she exchanges real property used in business (the ranch) for investment property (the complex) in a direct exchange. The transaction is not a like-kind exchange for B because she acquired the apartment complex for resale.

Question 19

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.What is Kole's realized gain?

Accepted Answer

C) The total value received in the exchange is $440,000 (the sum of the $320,000 FMV of the land plus the debt relief of $80,000 and the cash of $40,000). The realized gain is $200,000 ($440,000 - $240,000 adjusted basis).

Question 20

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

C) The total value received in the exchange is $200,000 (the sum of the $150,000 FMV of the land plus the $40,000 debt relief and the cash of $10,000). The realized gain is $80,000 ($200,000 - $120,000 adjusted basis). The taxpayer receives $50,000 of boot (debt relief and cash). He will recognize $50,000, the lesser of the $50,000 of boot and the $80,000 realized gain.

Quiz 12: Property Transactions: Nontaxable Exchanges