Question 1

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 2

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

In a nontaxable exchange, the basis of the old property carries over to the new property received. Therefore, the basis in the new truck is $8,500. However, since Henri also paid $5,000 in cash, the total basis in the new truck is $8,500 + $5,000 = $13,500.

Question 3

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 4

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 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

Accepted Answer

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

Question 6

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?

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 7

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

Accepted Answer

This statement is not true because a loss is only recognized if the taxpayer transfers non-like-kind property in an otherwise like-kind exchange if the non-like-kind property is not incidental to the exchange. If the non-like-kind property is incidental, then no loss is recognized.

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

All of the following are true except:

Accepted Answer

A nonsimultaneous exchange can still qualify as a like-kind exchange if certain requirements are met, such as the use of a qualified intermediary.

Question 10

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 11

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 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

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 14

Stephanie's building,which was used in her business,was destroyed in a fire.Stephanie's adjusted basis in the building was $175,000,and its FMV was $210,000.Stephanie filed an insurance claim and was reimbursed $200,000.In that same year,Stephanie invested $180,000 of the insurance proceeds in another business building.Assuming the proper election is made to defer gain,Stephanie's basis in the new building will be

Accepted Answer

The answer of Stephanie's building,which was used in her business,was...

Question 15

Stephanie's building,which was used in her business,was destroyed in a fire.Stephanie's adjusted basis in the building was $175,000,and its FMV was $210,000.Stephanie filed an insurance claim and was reimbursed $200,000.In that same year,Stephanie invested $180,000 of the insurance proceeds in another business building.If the proper election is made,Stephanie will recognize gain of

Accepted Answer

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Question 16

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 for two years to dispose of the property received in order to avoid having to recognize any gain on the exchange. This is known as the related-party exchange holding period requirement, enforced under Section 1031 of the Internal Revenue Code.

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

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

Question 18

Ron's building,which was used in his business,was destroyed in a fire.Ron's adjusted basis in the building was $210,000,and its FMV was $330,000.Ron filed an insurance claim and was reimbursed $300,000.In that same year,Ron invested $240,000 of the insurance proceeds in another business building.Ron will recognize gain of

Accepted Answer

The answer of Ron's building,which was used in his business,was...

Question 19

Cassie owns a Rembrandt painting she acquired on June 1,2008 as an investment.She exchanges the painting on September 5,2013,for a Picasso sculpture and marketable securities to be held as an investment.On what date does the sculpture's holding period begin?

Accepted Answer

The holding period of the Picasso sculpture begins on June 1, 2008, because the exchange of the Rembrandt painting for the sculpture is a like-kind exchange, which allows the holding period to tack on from the original asset.

Question 20

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

Quiz 12: Property Transactions: Nontaxable Exchanges