Question 1

The taxpayer must elect to have the exclusion of gain under § 121 (sale of principal residence) apply.

Accepted Answer

The exclusion of gain under § 121 for the sale of a principal residence automatically applies; the taxpayer does not need to make an election for it to take effect.

Question 2

In order to qualify for like-kind exchange treatment under § 1031,which of the following requirements must be satisfied?
A)The form of the transaction is a sale or exchange.
B)Both the property transferred and the property received are held either for productive use in a trade or business or for investment.
C)The exchange must be completed by the end of the second tax year following the tax year in which the taxpayer relinquishes his or her like-kind property.
D)Only a.and b.
E)a.,b.,and c.

Accepted Answer

The answer of In order to qualify for like-kind exchange...

Question 3

Matt,who is single,sells his principal residence,which he has owned and occupied for 5 years,for $435,000.The adjusted basis is $140,000 and the selling expenses are $20,000.Three days after the sale he purchases another residence for $385,000.Matt's recognized gain is $25,000 and his basis for the new residence is $385,000.

Accepted Answer

Matt meets the qualifications for the exclusion of up to $250,000 ($500,000 for married filing jointly) of gain on the sale of a principal residence. Since he owned and occupied the residence for at least 2 out of the 5 years preceding the sale, and the gain is less than the maximum exclusion amount, he will not owe any taxes on the sale. His recognized gain is calculated as follows: Sale price $435,000 - Selling expenses $20,000 - Adjusted basis $140,000 = $275,000. However, since this gain is less than the maximum exclusion amount, none of it is taxable. He can use the entire sale price to purchase his new residence, and his basis in the new residence will be $385,000.

Question 4

Lily exchanges a building she uses in her rental business for a building owned by Kendall,which she will use in her rental business.The adjusted basis of Lily's building is $120,000 and the fair market value is $170,000.Which of the following statements is correct?
A)Lily's recognized gain is $50,000 and her basis for the building received is $120,000.
B)Lily's recognized gain is $50,000 and her basis for the building received is $170,000.
C)Lily's recognized gain is $0 and her basis for the building received is $120,000.
D)Lily's recognized gain is $0 and her basis for the building received is $170,000.
E)None of the above is correct.

Accepted Answer

This is a like-kind exchange under Section 1031 of the Internal Revenue Code, which allows for the exchange of similar types of property without recognizing gain or loss. Therefore, Lily will not recognize any gain on the exchange. Her basis for the building received will be the same as the basis of the building exchanged, which is $120,000.

Question 5

Brett owns investment land located in Tucson,Arizona.He exchanges it for other investment land.In which of the following locations may the other investment land be located and enable Brett to qualify for § 1031 like-kind exchange treatment?
A)Mexico City,Mexico.
B)Toronto,Canada.
C)Paris,France.
D)Only a.and b.
E)None of the above.

Accepted Answer

The answer of Brett owns investment land located in Tucson,Arizona.He...

Question 6

A taxpayer who sells his or her principal residence at a realized loss can elect to recognize the loss even if a qualified residence is acquired during the statutory time period.

Accepted Answer

A taxpayer can only recognize a loss on the sale of their primary residence if it is a realized loss and not offset by any gain, and they cannot deduct the loss on their tax return. Additionally, if they purchase a new qualified residence within the statutory time period, any loss on the sale of the old residence is generally disallowed. However, there are some exceptions to this rule, such as if the taxpayer uses the new residence as their primary residence and meets certain other criteria.

Question 7

To qualify for the § 121 exclusion,the property must have been used by the taxpayer for the 5 years preceding the date of sale and owned by the taxpayer as the principal residence for the last 2 of those years.

Accepted Answer

The answer of To qualify for the § 121 exclusion,the...

Question 8

Deidra has owned and occupied her principal residence for 10 years.Two and one-half years ago she married Doug who moved into her house.Doug has never owned a home.When Deidra is transferred to another city,she sells the house and has a realized gain of $425,000.Deidra can exclude the realized gain of $425,000 from her gross income under § 121 if she and Doug file a joint return.

Accepted Answer

Deidra meets the ownership and use requirements for the § 121 exclusion since she has owned and occupied the property for at least two out of the five years prior to the sale. Additionally, because she is married and filing jointly with Doug, he also meets the use requirement because he lived in the house as his principal residence for at least two out of the five years prior to the sale. Therefore, they can exclude up to $500,000 of the realized gain on the sale of their home.

Question 9

Wyatt sells his principal residence in December 2017 and qualifies for the § 121 exclusion.He sells another principal residence in November 2018.Under no circumstance can Wyatt qualify for the § 121 exclusion on the sale of the second residence.

Accepted Answer

According to the IRS rules, a taxpayer can only claim the § 121 exclusion once every two years. As Wyatt already claimed the exclusion for the sale of his first residence in December 2017, he would not be able to claim it again for the sale of his second residence in November 2018, since less than two years have passed. Therefore, the answer is false.

Question 10

The maximum amount of the § 121 gain exclusion on sale of a principal residence is $250,000 for a single individual and $500,000 for a married couple.

Accepted Answer

This statement is true according to Section 121 of the Internal Revenue Code.

Question 11

Which,if any,of the following exchanges qualifies for nonrecognition treatment as a § 1031 like-kind exchange?
A)Partnership interest for a partnership interest.
B)Inventory for inventory.
C)Securities for personalty.
D)Business realty for investment realty.
E)None of the above.

Accepted Answer

Business realty for investment realty is considered a like-kind exchange and qualifies for nonrecognition treatment under § 1031 of the Internal Revenue Code. The other choices do not qualify for nonrecognition treatment because they do not involve like-kind property.

Question 12

Latisha owns a warehouse with an adjusted basis of $200,000.She exchanges it for a strip mall building worth $225,000.Which of the following statements is correct?
A)If the warehouse was used in Latisha's business to store inventory and the strip mall building is to be rented to tenants,her recognized gain is $25,000 and her basis for the strip mall building is $225,000.
B)If the warehouse was used in Latisha's business to store inventory and the strip mall building is to be used as a retail outlet for her business,her recognized gain is $0 and her basis for the strip mall building is $200,000.
C)If the warehouse is used by Latisha to store personal use items such as excess furniture and the strip mall building is to be rented to tenants,her recognized gain is $25,000 and her basis for the strip mall building is $225,000.
D)Only b.and c.are correct.
E)a.,b.,and c.are correct.

Accepted Answer

For an exchange of property to qualify for non-recognition treatment under Section 1031, the exchanged properties must have a similar character or use. The warehouse and strip mall building have different uses - the warehouse was used to store inventory, while the strip mall building is going to be rented to tenants. Therefore, none of the options involve tax-deferred treatment, and Latisha will have recognized gain in the transaction.

Option A is incorrect because it suggests that the transaction will qualify for non-recognition treatment, and that is not the case.

Option B is incorrect because Latisha will recognize gain of $25,000 since the fair market value of the strip mall building ($225,000) is greater than the adjusted basis of the warehouse ($200,000) and she will have to pay taxes on that gain.

Option C is incorrect because again, the transaction will not qualify for non-recognition treatment, leading to tax recognition on gain.

Option D is correct because none of the options involve tax deferral under Section 1031.

Question 13

At a particular point in time,a taxpayer can have two principal residences for § 121 exclusion purposes.

Accepted Answer

According to IRS Publication 523, a taxpayer can only have one principal residence at a time for the purpose of the § 121 exclusion. However, if they move and establish a new principal residence, they may be able to use the exclusion again in the future.

Question 14

A taxpayer whose principal residence is destroyed in a fire can use both the § 121 (sale of residence gain exclusion) and the § 1033 (involuntary conversion postponement of gain) provisions.

Accepted Answer

According to IRS Publication 547, if a taxpayer's principal residence is destroyed in an involuntary conversion (such as a fire), they can use both the § 121 exclusion and the § 1033 postponement of gain provisions. The § 121 exclusion allows them to exclude up to $250,000 ($500,000 if married filing jointly) of gain from the sale of their home, as long as they meet certain qualifications. The § 1033 provision allows them to postpone the gain from the involuntary conversion if they use the proceeds to replace the destroyed property with similar property.

Question 15

If there is an involuntary conversion (i.e.,casualty,theft,or condemnation) of the taxpayer's principal residence,the realized gain may be postponed as a § 1033 involuntary conversion and/or excluded as a § 121 sale of a principal residence.

Accepted Answer

If there is an involuntary conversion of the taxpayer's principal residence, the realized gain may be postponed as a § 1033 involuntary conversion and/or excluded as a § 121 sale of a principal residence.

Question 16

Kelly,who is single,sells her principal residence,which she has owned and occupied for 8 years,for $375,000.The adjusted basis is $64,000 and selling expenses are $22,000.She purchases another principal residence three months later for $200,000.Her recognized gain is $39,000 and her basis for the new principal residence is $200,000.

Accepted Answer

Kelly meets the requirements for the home sale exclusion, as she owned and occupied the residence for at least 2 out of the 5 years preceding the sale. Therefore, she can exclude up to $250,000 of gain from the sale. Her recognized gain of $39,000 is less than the maximum exclusion, so she does not owe any taxes on the sale. Her basis for the new principal residence is the purchase price of $200,000.

Question 17

If the recognized gain on an involuntary conversion equals the realized gain because of a reinvestment deficiency,the basis of the replacement property will be more than its cost (cost plus realized gain).

Accepted Answer

The basis of the replacement property will be its cost minus any deferred gain, not more than its cost. If the entire realized gain is recognized (no deferral), the basis of the replacement property is simply its cost, as there is no gain to defer and adjust the basis.

Question 18

Owen and Polly have been married for five years.Owen sells investment property to Polly for a realized gain of $140,000.Owen's gain of $140,000 is not recognized and Polly's basis for the property she purchased is her cost.

Accepted Answer

The answer of Owen and Polly have been married for...

Question 19

Which of the following statements is correct?
A)In a nontaxable exchange in which gain is realized, the transaction results in a permanent recovery of more than the taxpayer's cost or other basis for tax purposes.
B)In a nontaxable exchange in which loss is realized, the transaction results in a permanent recovery of less than the taxpayer's cost or other basis for tax purposes.
C)In a tax-free transaction in which gain is realized, the transaction results in the permanent recovery of more than the taxpayer's cost or other basis for tax purposes.
D)All of the above.
E)None of the above.

Accepted Answer

Choice C is the only statement that accurately reflects the result of a tax-free transaction in which gain is realized. In a nontaxable exchange, the taxpayer's cost or other basis for tax purposes is carried over to the new property received in the exchange. Therefore, there is not a permanent recovery of more than the taxpayer's cost.

Question 20

Kendra owns a home in Atlanta.Her company transfers her to Chicago on January 2,2017,and she sells the Atlanta house in early February 2017.She purchases a residence in Chicago on February 3,2017.On December 15,2017,Kendra's company transfers her to Los Angeles.In January 2018,she sells the Chicago residence and purchases a residence in Los Angeles.Because multiple sales have occurred within a two-year period,§ 121 treatment does not apply to the sale of the second home.

Accepted Answer

The answer of Kendra owns a home in Atlanta.Her company...

Quiz 13: Property Transactions: Determination of Gain or Loss, basis Considerations, and Nontaxable Exchanges

The taxpayer must elect to have the exclusion of gain under § 121 (sale of principal residence) apply.

In order to qualify for like-kind exchange treatment under § 1031,which of the following requirements must be satisfied?

Lily exchanges a building she uses in her rental business for a building owned by Kendall,which she will use in her rental business.The adjusted basis of Lily's building is $120,000 and the fair market value is $170,000.Which of the following statements is correct?

Brett owns investment land located in Tucson,Arizona.He exchanges it for other investment land.In which of the following locations may the other investment land be located and enable Brett to qualify for § 1031 like-kind exchange treatment?