Question 1

Why is it generally undesirable to pass property by death when its fair market value is less than basis?

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Question 2

Under what circumstance is there recognition of some or all of the realized gain associated with the giving of boot by the taxpayer in a like-kind exchange?

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Question 3

Discuss the logic for mandatory deferral of realized gain or loss for a § 1031 like-kind exchange.

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Question 4

What effect do the assumption of liabilities have on a § 1031 like-kind exchange?

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Question 5

Discuss the treatment of realized gains from involuntary conversions.

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Question 6

Jamie is terminally ill and does not expect to live much longer. Pondering the consequences of her estate, she decides how to allocate her property to her nephews. She makes a gift of depreciated property (i.e., adjusted basis exceeds fair market value) to Will, a gift of appreciated property (i.e., fair market value exceeds adjusted basis) to Jim, and leaves appreciated property to Sam in her will. Each of the properties has the same fair market value. From an income tax perspective, which nephew is her favorite?

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Question 7

What requirements must be satisfied to receive nontaxable exchange treatment under § 1031?

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Question 8

What requirements must be satisfied for a delayed swap to qualify for § 1031 like-kind exchange treatment?

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Question 9

Identify two tax planning techniques that can be used to avoid the wash sale disallowance of loss.

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Question 10

Explain how the sale of investment property at a loss to a brother is treated differently from a sale to a nephew.

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Question 11

How does the replacement time period differ for the condemnation of real property used in a trade or business or held for investment when compared with that for other involuntary conversions?

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Question 12

Discuss the relationship between realized gain and boot received in a § 1031 like-kind exchange.

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Question 13

Distinguish between a direct involuntary conversion and an indirect involuntary conversion.

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Question 14

Edith's manufacturing plant is destroyed by fire on the afternoon of November 3, 2018. The adjusted basis is $800,000. The insurance company offers a settlement of $700,000. After protracted negotiations, Edith receives $825,000 on June 9, 2019. Edith is a fiscal year taxpayer whose tax year ends on June 30th. What is the latest date that Edith can invest the proceeds in qualifying replacement property and elect to defer the gain under § 1033?

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Question 15

Discuss the relationship between the postponement of realized gain under § 1031 (like-kind exchanges) and the adjusted basis and holding period for the replacement property.

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Question 16

Louis owns a condominium in New Orleans which has been his principal residence for 12 years. He wants to be near Lake Ponchartrain since he enjoys water activities. Therefore, he sells the condominium. His original intent was to purchase a house in New Orleans near the lake. However, the cost of such properties far exceeded his sales proceeds. He was able to purchase a house on the lake in Covington, which is located across the causeway. He invested all of his sales proceeds in the Covington house. After two months of commuting over an hour to and from work each day, he decides to rent an efficiency apartment in New Orleans near his office. He spends the weekends and vacations at his home in Covington.
a. Does Louis qualify for exclusion of gain under § 121?
b. Does his Covington house qualify as his principal residence?

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Question 17

Discuss the treatment of losses from involuntary conversions.

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Question 18

To be eligible to elect postponement of gain treatment for an involuntary conversion, what are the three tests for qualifying replacement property?

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Question 19

Define an involuntary conversion.

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Question 20

What kinds of property do not qualify under the like-kind provisions?

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