Deck 8: Tax-Deferred Exchanges

Question 1

_____ 7.The taxpayer-use test for deferral of gain on an involuntary conversion requires the taxpayer to acquire property that has the same function as the involuntarily converted property that he or she used prior to the conversion.

Answer 1

False

Question 2

_____ 1.The holding period for property received in a qualifying like-kind exchange begins on the date the new property is received.

Answer 2

False

Question 3

_____ 17.Liabilities assumed by either a partnership or corporation have identical effects on the owners' bases in their ownership interests.

Answer 3

False

Question 4

_____ 2.Boot received in a like-kind exchange never causes loss to be recognized.

Question 5

All of the following are deferral provisions except:

A)Sale of a personal residence
B)Like-kind exchange
C)Exchange of a life insurance contract for an annuity contract
D)Property transfers pursuant to divorce proceedings
E)All are deferral provisions

Question 6

Cal exchanges office furniture (fair market value = $100,000;adjusted basis = $90,000)and a business auto (fair market value = $10,000;adjusted basis = $6,000)for fire retardant filing cabinets (fair market value = $110,000;adjusted basis = $80,000).How much gain or loss does Cal recognize on the exchange?

A)0
B)$4,000 gain on auto
C)$10,000 gain on furniture
D)$14,000 total gain
E)None of the above

Question 7

Which of the following is not a characteristic of a like-kind exchange?

A)The holding period for like-kind property includes the holding period of the property surrendered.
B)Receipt of boot can cause gain recognition up to the gain realized.
C)Business realty can be exchanged for business personalty.
D)Personal-use assets do not qualify for like-kind exchanges.
E)All are like-kind characteristics.

Question 8

_____ 14.If a taxpayer's personal residence is involuntarily converted,the taxpayer can only defer gain by acquiring a new residence in the required time period using Internal Revenue Code Section 1033.

Question 9

How much does a taxpayer in the 33 percent tax bracket save by deferring a $1,000,000 gain for 3 years using a 6 percent discount rate for evaluation?

A)$330,000
B)$277,200
C)$165,000
D)$52,800
E)None of the above

Question 10

_____ 12.A theft loss of $10,000 cash by an individual results in a $10,000 casualty loss deduction.

Question 11

_____ 3.A business airplane exchanged for a fleet of trucks,all used for the delivery of manufactured goods,is a qualifying like-kind exchange.

Question 12

_____ 15.A taxpayer must transfer a sufficient amount of property,along with any services performed for the stock received in a corporate formation,for the stock received in the exchange to be used to meet the control requirement.

Question 13

_____ 6.For a nonsimultaneous exchange to qualify for like-kind provisions,the taxpayer must identify the property to be acquired within 90 days and actually close the transactions within 180 days.

Question 14

_____ 13.To defer gain recognition on an involuntary conversion,qualifying property must be obtained within a specified time period.

Question 15

_____ 9.A condemnation is one type of involuntary conversion.

Question 16

_____ 16.Internal Revenue Code Section 351,relating to transfers to a controlled corporation,can apply to transfers to both a new and an existing corporation.

Question 17

_____ 4.The holding period for boot in a like-kind exchange begins on the date of the exchange.

Question 18

_____ 8.Both gain and loss are deferred in a wash sale.

Question 19

_____ 5.Both gain and loss are deferred in a like-kind exchange.

Question 20

_____ 10.The loss on the total destruction of business property is always its adjusted basis regardless of fair market value.

Question 21

Twining Corporation has some land it wants to trade for a building owned by Clopp Corporation.Clopp does not want to exchange the building because it wants to recognize its loss on the building.Twining,however,does not want to recognize its gain.What alternative(s)does Twining have?

A)Twining can sell its land to a third party and take the money and purchase the building.
B)Twining can have a third party purchase the building and have the third party trade for the land.
C)Twining can complete a nonsimulataneous exchange within one year of identifying the desired property.
D)All of the above are acceptable alternatives.
E)None of the above is an acceptable alternative.

Question 22

Simon purchased 1,000 shares of ABC stock for $8,000 on April 4.On March 1 he had sold 1,500 shares of ABC stock for $9,000 that he had purchased three months earlier for $15,000.What is Simon's realized and recognized loss,respectively,on the March 1 stock sale?

A)$6,000,$6000
B)$6,000,0
C)$6,000,$4,000
D)$4,000,$6,000
E)None of the above

Question 23

Willow Corporation exchanged land valued at $250,000 (adjusted basis = $175,000)for a building owned by Tree Corporation valued at $350,000 (adjusted basis = $200,000)and $50,000 cash.In addition,Willow assumed the $150,000 mortgage on Tree's building.What are Willow and Tree's realized gains or losses on the properties exchanged,respectively?

A)$75,000,0
B)$75,000,$150,000
C)$225,000,$150,000
D)$225,000,$200,000
E)None of the above

Question 24

Trudi Corporation has a building that it needs to sell or exchange because of growth in its business.If Trudi sells the building,it will have a gain of $450,000.What is the amount of taxes that Trudi will avoid paying if it can exchange the building? The corporation has $1,000,000 of taxable income from operations for the current year.

A)$90,000
B)$153,000
C)$175,500
D)$450,000
E)None of the above

Question 25

Wally's investment real estate was condemned on November 14,2013.On February 14,2014,he received $250,000 for the property that had a basis of $210,000.What is the last date that Wally can acquire replacement property to avoid gain recognition?

A)November 14,2016
B)February 14,2017
C)December 31,2016
D)December 31,2017
E)None of the above

Question 26

What is the amount of the casualty loss on a business truck that had a fair market value of $14,000 before an accident and $4,000 after an accident,if its adjusted basis is zero?

A)$14,000
B)$10,000
C)$4,000
D)0
E)None of the above

Question 27

Refer to the information in the preceding question.What are James's and Pete's recognized gains on the exchange,respectively?

A)0,0
B)0,$300,000
C)$100,000,0
D)$100,000,$400,000
E)None of the above

Question 28

Refer to the information in the preceding question.What are Willow's and Tree's recognized gain or loss,respectively?

A)0,0
B)$50,000,$100,000
C)$50,000,$150,000
D)$75,000,$150,000
E)None of the above

Question 29

Which of the following is not a required characteristic of a qualifying Section 351 transaction?

A)If more than 20 percent of the stock is transferred for services,property must also be transferred by the service provider.
B)Gain may be recognized if the transferor receives something other than stock.
C)The transferors must control the corporation after the transfer.
D)Control requires only owning 80 percent of the value of the voting stock
E)All are characteristics.

Question 30

Georgia's home was damaged by flood.Its fair market value before and after the flood are $125,000 and $75,000,respectively.Its adjusted basis was $90,000.Georgia received $50,000 from her insurance company and she was able to have the house repaired for $40,000.What is the amount of Georgia's basis in the house after the repairs?

A)$ 40,000
B)$ 80,000
C)$ 85,000
D)$125,000
E)None of the above

Question 31

Which of the following is not a characteristic of involuntary conversions?

A)Gain only is deferred
B)The taxpayer can receive cash to invest in qualifying replacement property
C)The provision applies to both realty and personalty
D)All of these are characteristics
E)None of these are characteristics

Question 32

In early 2013,Conrad Corporation discovered their bookkeeper had embezzled $30,000 over the last three years at a rate of approximately $10,000 per year.Conrad also suffered uninsured hurricane damage of $40,000 late in 2013 in a presidentially declared disaster are a.If Conrad wants to deduct its losses at the earliest time possible,what are the amounts (before any limitations)and year(s)of its loss deduction?

A)2013 = $70,000
B)2012 = $30,000,2012 = $40,000
C)2012 = $40,000,2013 = $30,000
D)2011 = $10,000,2012 = $10,000;2013 = $50,000
E)None of the above

Question 33

Which of the following would not be considered an involuntary conversion?

A)The theft of jewelry
B)Sale of property in a flood zone
C)Condemnation of a building for a highway
D)Destruction of a home by a tornado
E)All are involuntary conversions

Question 34

Zandu Corporation exchanged a building (fair market value = $1,000,000,adjusted basis = $700,000)and two semi-tractor-trailers (fair market value = $300,000;adjusted basis = $225,000),all five years old,for land to build a new facility valued at $1,300,000.What is Zandu's realized and recognized gain and its basis in the land? Realized gain Recognized gain Basis of land

A)0 0 $ 925,000
B)$75,000 $75,000 $1,000,000
C)$300,000 $300,000 $1,300,000
D)$375,000 $75,000 $1,000,000

Question 35

Sam's land was condemned for a sewage treatment plant.He received $600,000 for the land that had a basis of $650,000.What is his realized and recognized gain or loss,respectively,on this involuntary conversion?

A)($50,000), ($50,000)
B)($50,000),0
C)$50,000,$50,000
D)0,0
E)None of the above

Question 36

A transfers machines valued at $170,000 (basis = $150,000)along with $30,000 cash to AB Corporation and B transfers real property valued at $320,000 (basis = $310,000)to the corporation.A receives 40 percent of the outstanding stock and B receives 60 percent.B also receives $20,000 from the corporation.What is A's basis for his AB stock?

A)$180,000
B $170,000
C)$160,000
D)$150,000
E)None of the above

Question 37

Sid's home was destroyed by fire.He had purchased the home 18 months ago for $950,000.He received $1,300,000 from his insurance company to replace the home.If he fails to rebuild the home or acquire a replacement home in the required time,how much gain must he recognize on this conversion?

A)$350,000
B)$162,500
C)$100,000
D)$0
E)None of the above

Question 38

A transfers machines valued at $170,000 (basis = $150,000)along with $30,000 cash to AB Corporation and B transfers real property valued at $320,000 (basis = $310,000)to the corporation.A receives 40 percent of the outstanding stock and B receives 60 percent.B also receives $20,000 from the corporation.What are A's and B's recognized gains or losses,respectively,on these transfers?

A)$20,000,0
B)0,$20,000
C)0,$10,000
D)0,0
E)None of the above

Question 39

The taxpayer-use test for qualifying replacement property

A)applies only to personalty
B)requires replacement property used by the taxpayer to be used in the same business as the converted property
C)only requires leased realty to be replaced with other leased realty
D)Is more restrictive than the functional-use test

Question 40

James corporation exchanges a building (fair market value = $800,000,adjusted basis = $600,000)that has a $100,000 mortgage for another building owned by Pete Corporation (fair market value = $1,100,000,adjusted basis = $600,000)that is encumbered by a $400,000 mortgage.Each party assumed the mortgage on the building received.What are James's and Pete's realized gains on this exchange,respectively?

A)$200,000,$500,000
B)$200,000,$600,000
C)$500,000,$600,000
D)$500,000,$500,000
E)None of the above

Question 41

In 2013,Larry's car,which he purchased six years ago for $6,000,was demolished in a traffic accident.As a result of the delay caused by this accident,Larry missed a business meeting and lost out on an important sale on which he could have earned a $1,200 commission.When he arrived home,he found his house had been broken into and his personal video equipment currently worth $3,200 (original cost = $5,000)had been stolen,along with his baseball card collection valued at $2,000 (basis = $1,500).Larry's homeowner's policy covered only $3,000 of this theft loss.He had dropped the collision coverage on his auto insurance policy because that portion was too expensive,so he had no insurance coverage for his auto accident.His adjusted gross income is $82,000 and the fair market value of the car at the time of the accident was $8,000.How much can Larry deduct as an itemized deduction for his casualty and theft losses?

A)zero
B)$2,100
C)$2,700
D)$3,700
E)$6,700

Question 42

A transfers machines valued at $170,000 (basis = $150,000)along with $30,000 cash to AB Corporation and B transfers real property valued at $320,000 (basis = $310,000)to the corporation.A receives 40 percent of the outstanding stock and B receives 60 percent.B also receives $20,000 from the corporation.What is B's basis for his AB stock?

A)$340,000
B $320,000
C)$310,000
D)$300,000
E)None of the above

Question 43

Which of the following characteristics is the same for transfers of property to both a corporation and to a partnership in exchange solely for an ownership interest?

A)The transferors must have control of the corporation or partnership after the transfer.
B)Liabilities assumed affect the owner's basis in the entity's business in the same manner.
C)Loss is not recognized.
D)The holding period for all the assets transferred begins on the date of the transfer.
E)None of the characteristics are the same for both entities.

Question 44

Bertam transfers property with a $50,000 mortgage,a fair market value of $350,000,and a basis of $200,000 for stock valued at $300,000.If the corporation assumes the mortgage,what is Bertram's basis in the stock received in this qualifying Section 351 transaction?

A)$200,000
B)$250,000
C)$300,000
D)$350,000
E)None of the above

Question 45

Elizabeth exchanges her retail storage assets for retail displays.In this like-kind exchange,Elizabeth receives $2,000 in cash.The storage assets have a fair market value of $12,000 and Elizabeth's basis in the assets is $3,000.The displays have a fair market value of $10,000 and a basis of $8,000.What is Elizabeth's recognized gain on the exchange?

A)zero
B)$2,000
C)$6,000
D)$9,000

Question 46

A transfers machines valued at $170,000 (basis = $150,000)along with $30,000 cash to AB Corporation and B transfers real property valued at $320,000 (basis = $310,000)to the corporation.A receives 40 percent of the outstanding stock and B receives 60 percent.B also receives $20,000 from the corporation.What is AB Corporation's basis for the machines?

A)$150,000
B $160,000
C)$170,000
D)$180,000
E)None of the above

Question 47

In a qualified reorganization:

A)Gain is generally deferred.
B)Only stock can be exchanged for stock.
C)One corporation must acquire all the assets of another corporation.
D)Two or more corporations are always involved.

Question 48

Cal contributes property valued at $50,000 (adjusted basis = $30,000)to a partnership in exchange for a partnership interest valued at $40,000 and $10,000 cash.What is Cal's recognized gain or loss on these transfers?

A)0
B)$4,000
C)$10,000
D)$20,000

Question 49

Elizabeth exchanges her retail storage assets for retail displays.In this like-kind exchange,Elizabeth receives $2,000 in cash.The storage assets have a fair market value of $12,000 and Elizabeth's basis in the assets is $3,000.The displays have a fair market value of $10,000 and a basis of $8,000.What is Elizabeth's realized gain on the exchange?

A)zero
B)$3,000
C)$6,000
D)$9,000

Question 50

David owns 600 shares of K Corporation stock when K is merged into Parent Corporation.David receives 500 shares of Parent Corporation stock (fair market value = $10,500)and $500 cash in exchange for his K Corporation stock.David's K stock had a basis of $8,000 and an $11,000 fair market value.What is David's realized and recognized gain,respectively?

A)$3,000 and $3,000
B $3,000 and $2,500
C)$2,500 and zero
D)$2,500 and $500
E)$3,000 and $500

Question 51

Juan owned a small rental property,which was condemned by the county to expand a local park.His adjusted basis in the property was $40,000 and he received a payment of $75,000 from the county.A year later he purchased a similar piece of real estate for $70,000.What is Juan's basis in the replacement property?

A)$40,000
B)$45,000
C)$50,000
D)$70,000
E)$75,000

Question 52

A transfers machines valued at $170,000 (basis = $150,000)along with $30,000 cash to AB Corporation and B transfers real property valued at $320,000 (basis = $310,000)to the corporation.A receives 40 percent of the outstanding stock and B receives 60 percent.B also receives $20,000 from the corporation.What is AB Corporation's basis for the real property?

A)$300,000
B $310,000
C)$320,000
D)$330,000
E)None of the above

Question 53

Elizabeth exchanges her retail storage assets for retail displays.In this like-kind exchange,Elizabeth receives $2,000 in cash.The storage assets have a fair market value of $12,000 and Elizabeth's basis in the assets is $3,000.The displays have a fair market value of $10,000 and a basis of $8,000.What is Elizabeth's basis in the displays received in the exchange?

A)$9,000
B)$6,000
C)$3,000
D)zero

Question 54

Sophie received a 30 percent interest in a general partnership in exchange for property valued at $35,000 (adjusted basis = $25,000)and services valued at $5,000.In addition,the partnership assumed a $10,000 liability on the property.What is Sophie's basis in her partnership interest?

A)$20,000
B)$23,000
C)$25,000
D)$39,000
E)None of the above

Question 55

Juan owned a small rental property,which was condemned by the county to expand a local park.His adjusted basis in the property was $40,000 and he received a payment of $75,000 from the county.A year later he purchased a similar piece of real estate for $70,000.What is Juan's recognized gain on the involuntary conversion of his rental property?

A)0
B)$5,000
C)$10,000
D)$30,000
E)$35,000