Deck 28: Property Transactions: Nontaxable Exchanges

Question 1

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

A)Real property used in a trade or business can be exchanged for real property to be held for investment.
B)An exchange of inventory does not qualify as a like-kind exchange.
C)An exchange of a hotel in the United States for a hotel in Canada will not qualify.
D)A sale of property and subsequent purchase of like-kind property will always qualify as a like-kind exchange.

Answer 1

D

Question 2

The receipt of boot as part of a nontaxable exchange causes a realized loss to be recognized.

Answer 2

False

Question 3

Realized gain or loss must be recognized unless a specific Code section provides for nonrecognition treatment.

Answer 3

True

Question 4

The holding period for boot property received begins on the day after the date of the exchange.

Question 5

The basis of non-like-kind property received in an otherwise nontaxable exchange is the basis in the hands of the transferor at the date of the exchange.

Question 6

If an exchange qualifies as a like-kind exchange,nonrecognition of gain or loss is elective.

Question 7

The exchange of land held for investment purposes for stock in a real estate holding corporation held as an investment qualifies for like-kind treatment.

Question 8

A sale of property and subsequent purchase of like-kind property may be treated as a like-kind exchange if the two transactions are interdependent.

Question 9

Real property exchanged for personal property,both held for productive use in a business,qualifies as a like-kind exchange.

Question 10

If related taxpayers exchange property qualifying for a like-kind exchange,the properties must be retained for three years after the exchange to prevent recognition of gain resulting from the original exchange on a subsequent disposition of the property.

Question 11

The holding period of like-kind property received in a nontaxable exchange begins on the day of the exchange.

Question 12

Where non-like-kind property other than cash is received as boot,the amount of the boot is the property's fair market value.

Question 13

If each party in a like-kind exchange assumes a liability of the other party,only the net liability given or received is boot.

Question 14

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?

A)The transaction qualifies as a like-kind exchange for B but not for A.
B)The transaction qualifies as a like-kind exchange for both B and A.
C)The transaction qualifies as a like-kind exchange for A but not for B.
D)The transaction does not qualify as a like-kind exchange for either B or A.

Question 15

A sole proprietor exchanges an office building used in her business for undeveloped land she plans to hold for investment purposes.The exchange will qualify as like-kind.

Question 16

An investor exchanges an office building located in Niagara Falls,NY,for an office building located in Niagara Falls,Ontario.The exchange does not qualify as like-kind.

Question 17

For purposes of nontaxable exchanges,cash and non-like-kind property constitute boot.

Question 18

A taxpayer conducts a qualifying like-kind exchange.There is no boot involved in the transaction.The basis of the property received will equal the adjusted basis of the property exchanged.

Question 19

All of the following qualify as a like-kind exchange except

A)an apartment building held for investment for a warehouse used in a trade or business.
B)a printer used in trade or business for a computer used in trade or business.
C)improved real estate held for investment for unimproved real estate held for investment.
D)all of the exchanges qualify as like-kind exchanges.

Question 20

A taxpayer exchanges an office building held as an investment asset for an office building to be used in her business.The exchange will qualify as like-kind.

Question 21

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?

A)$0
B)$14,000
C)$20,000
D)$34,000

Question 22

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?

A)$0
B)$175,000
C)$200,000
D)none of the above.

Question 23

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?

A)$0
B)$10,000
C)$20,000
D)$30,000

Question 24

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?

A)$120,000
B)$80,000
C)$200,000
D)$190,000

Question 25

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?

A)$0
B)$20,000
C)$40,000
D)$60,000

Question 26

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?

A)6 months
B)1 year
C)2 years
D)no waiting period

Question 27

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?

A)$5,000
B)$8,500
C)$13,500
D)$15,000

Question 28

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

A)$0.
B)$10,000.
C)$50,000.
D)$80,000.

Question 29

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

A)$130,000.
B)$140,000.
C)$160,000.
D)$170,000.

Question 30

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?

A)$600,000
B)$800,000
C)$1,000,000
D)$400,000

Question 31

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?

A)$0
B)($30,000)
C)($16,000)
D)$14,000

Question 32

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

A)$150,000.
B)$170,000.
C)$190,000.
D)$210,000.

Question 33

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

A)$10,000 gain.
B)$5,000 gain.
C)$5,000 loss.
D)$0.

Question 34

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

A)Nonrecognition of gains and losses is mandatory if the exchange is a like-kind exchange.
B)The holding period of like-kind property received includes the holding period of the property exchanged.
C)A loss is always recognized if the taxpayer transfers non-like-kind personal-use property (e.g.,a personal-use car)in an otherwise like-kind exchange.
D)The basis of property received in an exchange is equal to the basis of the property exchanged less the boot received plus the gain recognized and less any loss recognized.

Question 35

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?

A)$0
B)$4,000
C)$6,000
D)$10,000

Question 36

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

A)$120,000.
B)$150,000.
C)$180,000.
D)$200,000.

Question 37

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

A)$0.
B)$40,000.
C)$120,000.
D)$140,000.

Question 38

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?

A)$0
B)$50,000
C)$120,000
D)$150,000

Question 39

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

A)$50,000.
B)$40,000.
C)$0.
D)$160,000.

Question 40

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

A)identified within 45 days and received within 180 days.
B)identified within 45 days and received by year-end.
C)identified within 60 days and received within 180 days.
D)identified within 90 days and received by year-end.

Question 41

If property is involuntarily converted into similar property,the basis and holding period of the converted property carry over to the basis and holding period of the replacement property.

Question 42

Replacing a building with land qualifies as replacement property under the involuntary conversion rules relevant to a casualty.

Question 43

If the threat of condemnation exists and the taxpayer has reasonable grounds to believe that the property will be condemned,the taxpayer may elect to defer gain even if the taxpayer sells the property to a party other than the governmental unit that is threatening to condemn the property.

Question 44

When an involuntary conversion is due to the condemnation of real property held for productive use in a trade or business or for investment,the replacement period will end three years after the close of the first tax year in which any part of the gain is realized.

Question 45

A taxpayer may elect to defer recognition of a loss resulting from an involuntary conversion.

Question 46

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

A)$0.
B)$30,000.
C)$60,000.
D)$90,000.

Question 47

Vector Inc.'s office building burned down on October 31,2017.Vector,a calendar-year taxpayer,finally settles with the insurance company on February 3,2018.In order to defer the gain realized on the building,Vector must acquire another office building by February 3,2020.

Question 48

All of the following are true except

A)a nonsimultaneous exchange may never qualify as a like-kind exchange.
B)nonrecognition of gains and losses is mandatory if the exchange is a like-kind exchange.
C)a loss may be recognized on non-like-kind property (boot)if the taxpayer transfers the boot in an otherwise like-kind exchange.
D)the holding period of like-kind property received includes the holding period of the property exchanged.

Question 49

Kuda owns a parcel of land she acquired on June 1,2012,as an investment.She exchanges the land on July 5,2019,for a storage building to be used in her business and marketable securities to be held as an investment.The marketable securities' holding period begins on

A)June 1,2012
B)June 2,2012
C)July 5,2019
D)July 6,2019

Question 50

Juan's business delivery truck is destroyed in an accident.He paid $40,000 for the truck,and $30,000 of depreciation has been deducted during its period of use.The insurance company pays Juan $32,000 due to the accident.What is the minimum amount that Juan must spend on a new truck to avoid any gain recognition?

A)$40,000
B)$32,000
C)$10,000
D)$22,000

Question 51

The involuntary conversion provisions which allow deferral of gain are mandatory.

Question 52

Kuda owns a parcel of land she acquired on June 1,2012,as an investment.She exchanges the land on July 5,2019,for a storage building to be used in her business and marketable securities to be held as an investment.On what date does the storage building's holding period begin?

A)June 1,2012
B)June 2,2012
C)July 5,2019
D)July 6,2019

Question 53

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

A)$175,000.
B)$180,000.
C)$200,000.
D)$210,000.

Question 54

In order to fully defer the gain realized on the involuntary conversion of property,the taxpayer must acquire qualifying replacement property costing at least as much as the cost of the original property.

Question 55

All or part of gain realized on an involuntary conversion is deferred but not permanently excluded if qualifying replacement property is acquired within the requisite period of time.

Question 56

If the taxpayer elects to defer the gain on an involuntary conversion,the holding period of the replacement property begins on the date of purchase.

Question 57

In an involuntary conversion,the basis of replacement property is its cost reduced by the gain deferred.

Question 58

If real property used in a trade or business or held for investment is condemned,it must be replaced with property having a similar functional use.

Question 59

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 to defer gain,Stephanie will recognize gain of

A)$0.
B)$15,000.
C)$20,000.
D)$25,000.

Question 60

When the cost of replacement property is less than the amount realized on an involuntary conversion,gain will be recognized.The recognized gain will be equal to the amount realized over the cost of the replacement property,but not more than the total realized gain.

Question 61

According to Sec.121,individuals who sell or exchange their personal residence may exclude part or all of the gain if the house was owned and occupied as a principal residence for

A)at least five years immediately before the sale date.
B)at least one year of the three-year period before the sale date.
C)at least two years of the five-year period before the sale date.
D)at least five years of the ten-year period before the sale date.

Question 62

If a principal residence is sold before satisfying the ownership and use tests,part of the gain may be excluded if the sale is due to a change in employment,health,or unforeseen circumstances.

Question 63

Alex,a commercial fisherman,owns a fishing boat with a $1,600,000 basis.The boat is destroyed in a hurricane,and Alex collects $2,000,000 from the insurance company.He purchases another boat for $1,550,000.What is the amount of the gain recognized on the transaction?

A)$400,000
B)$50,000
C)$450,000
D)$0

Question 64

The building used in Manuel's business was condemned by the city of Mobile.Manuel received a condemnation award of $220,000.He paid $800 in lawyer's fees and $600 for an appraisal of the property.Manuel's adjusted basis in the building was $120,000.Manuel reinvests in similar property costing $200,000,and Manuel makes the proper election regarding the property.Manuel's basis in the new building is

A)$102,400.
B)$121,400.
C)$120,000.
D)$200,000.

Question 65

In the case of married taxpayers,an individual may claim the Sec.121 exclusion even if the individual's spouse used the exclusion within the past two years.

Question 66

If a taxpayer owns more than one home,she can designate the home that will be considered her principal residence for purposes of the Sec.121 exclusion.

Question 67

In order for the gain on the sale of a personal residence to be excluded under Sec.121,a replacement residence must be purchased within two years.

Question 68

The building used in Terry's business was condemned by the city of St.Louis.Terry received a condemnation award of $125,000.He paid $1,200 in lawyer's fees and $800 for an appraisal of the property.Terry's adjusted basis in the building was $60,000.Terry reinvests in similar property costing $110,000,and Terry makes the proper election regarding the property.What is the amount of Terry's recognized gain on the condemnation?

A)$15,000
B)$13,000
C)$50,000
D)$63,000

Question 69

The building used in Tim's business was condemned by the city of Lafayette.Tim received a condemnation award of $125,000.He paid $1,200 in lawyer's fees and $800 for an appraisal of the property.Tim's adjusted basis in the building was $60,000.Tim reinvests in similar property costing $110,000,and Tim makes the proper election regarding the property.What is the amount of Tim's realized (not recognized)gain on the condemnation?

A)$0
B)$50,000
C)$63,000
D)$65,000

Question 70

Alex owns an office building which the state condemns on January 15,2019.Alex receives the condemnation award on April 1,2019.In order to qualify for nonrecognition of gain on this involuntary conversion,what is the last date for Alex to acquire qualified replacement property?

A)April 1,2021
B)April 1,2022
C)December 31,2021
D)December 31,2022

Question 71

Bob and Elizabeth Brown,a married couple,sell their personal residence to Tamel.Tamel pays $660,000 and assumes their $90,000 mortgage.To make the sale,the Browns pay $20,000 in commissions and $10,000 in legal costs.The couple has owned and lived in the house for seven years and their tax basis is $200,000.What is the amount of gain recognized on the sale?

A)$0
B)$20,000
C)$50,000
D)$520,000

Question 72

Ron and Fay live in Buffalo.They also own a condominium in Orlando (purchased in 2011)which they rent to vacationers.Ron and Fay will be retiring.They plan to live in the Orlando property for two and a half years.When they sell it,they will be able to exclude the full gain which is expected to be about $200,000.

Question 73

The taxpayer must be occupying the residence at the time of the sale in order for Sec.121 to apply.

Question 74

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's basis in the new building is

A)$180,000.
B)$210,000.
C)$240,000.
D)$330,000.

Question 75

The $250,000/$500,000 exclusion for gain on the sale of a personal residence is only available to taxpayers who are age 55 or older.

Question 76

Which of the following statements is false regarding involuntary conversions?

A)A taxpayer must replace the destroyed property within the same tax year in which the gain is realized.
B)A taxpayer cannot elect to defer recognition of a loss resulting from an involuntary conversion.
C)If deferral of gain is elected,the holding period of the converted property carries over to the replacement property.
D)Gain may be deferred if the property is involuntarily converted into property that is similar or related in service or use to the converted property.

Question 77

A loss on the sale of a taxpayer's personal residence is deductible if the taxpayer owned and lived in the home for two of five years.

Question 78

Which of the following statements regarding involuntary conversions is incorrect?

A)With some exceptions,the replacement property must be similar or related in service or use to the property converted.
B)The functional-use test is more restrictive than the like-kind test.
C)The taxpayer-use test applies to the involuntary conversion of rental property owned by an investor.
D)Real property used in a trade or business that is condemned must be replaced with property which has the same functional use as the converted property.

Question 79

Each of the following is true of deferral of gain attributable to the involuntary conversion of personal property with the exception of

A)gain deferral is elective,except for direct conversions.
B)the replacement property may be acquired by gift,inheritance,or purchase.
C)qualifying replacement property must be acquired within a specified time period.
D)replacement property must be similar or related in service or use to the converted property.

Question 80

Mitchell and Debbie Dixon,a married couple,sell their personal residence to Sophie.Sophie pays $225,000 and assumes their $70,000 mortgage.To make the sale,the Dixons pay $4,000 in commissions and $1,000 in legal costs.The couple has owned and lived in the house for seven years and their tax basis is $125,000.What is the amount of gain recognized on the sale?

A)$0
B)$100,000
C)$165,000
D)$170,000