Question 1

In a like-kind exchange, gains and losses are never recognized.

Accepted Answer

Recognition is only postponed
 Also, if boot is involved there may be recognition at the time of exchange

Question 2

Ray Rambler's oﬃce building with a basis of $75,000 was condemned by the county which paid him $120,000 as compensation. He purchased a new new oﬃce one year later for $105,000. Ray is entitled to postpone all of the $45,000 realized gain.

Accepted Answer

Ray must recognize $15,000 gain, to the extent that the compensation of $120,000 exceeds the replacement cost of $105,000.

Question 3

Leonard Longstreet owns a rental building with an adjusted basis of $300,000 and a fair market value of
$280,000. In July 2012, the state condemned the property for a highway project and paid him $280,000, which he immediately reinvested in a similar rental property. Leonard may recognize a loss.

Accepted Answer

Leonard has a recognized loss of $20,000. the nonrecognition in involuntary conversions applies only to gains.

Question 4

fte requirements for replacement property under a casualty and theft are less restrictive than for like-kind exchanges.

Accepted Answer

the requirements for replacement property under a casualty and theft are more restrictive than for like- kind exchanges. the property must be similar in service or use rather than just merely "like-kind
"

Question 5

Nonrecognition of gain is mandatory regardless of whether an involuntary conversion is for money or property.

Accepted Answer

If an involuntary conversion is for money, nonrecognition is an election. If the involuntary conversion is for other property, nonrecognition is mandatory.

Question 6

Taxpayers may elect out of the exclusion for sale of residence.

Accepted Answer

Taxpayers may elect out of this exclusion provision for any sale or exchange
 ftus, for example, taxpayers who plan to sell within two years two properties that met the exclusion eligibility requirements and who ﬁrst sell the property with the lesser gain may choose to elect out of the exclusion to reserve its use for the second sale where the gain is larger.

Question 7

fte exclusion on the sale of a personal residence is $500,000 for taxpayers ﬁling jointly and as single individuals.

Accepted Answer

the exclusion on the sale of a personal residence is $500,000 for taxpayers ﬁling jointly and $250,000 for single individuals.

Question 8

A taxpayer is required to own and occupy the residence three out of the last ﬁve years in order to qualify for the exclusion.

Accepted Answer

A taxpayer is required to own and occupy the residence two, not three, years out of the last ﬁve years in order to qualify for the exclusion.

Question 9

fte exlusion may be taken on a sale of a residence once each year, assuming a sale takes place that often.

Accepted Answer

the exclusion may only be taken once every two years.

Question 10

Any excluded gain on the sale of the residence reduces the basis of the new residence.

Accepted Answer

the excluded gain is a permanent exclusion and does not reduce the basis of the new residence

Question 11

If a gain realized on the sale of a personal residence is above the allowed exclusion, the excess may be deferred through a reduction in the basis of the new residence.

Accepted Answer

the excess gain may not be deferred through a reduction in the basis of the new residence
 ftis is a potential disadvantage of the new law.

Question 12

Loss from the sale of a personal residence is never recognized but gain from the sale of a personal residence may be recognized.

Accepted Answer

This is correct according to the tax code. Losses from the sale of personal residences are not deductible, whereas gains may be taxable if they exceed certain exclusions and exemptions.

Question 13

Melvin Monroe reads in the newspaper that the state highway department has decided to take his property for public use. He veriﬁes the news by phoning an oﬃcial of the highway department who is involved in the project acquiring this property. ftis is a threat of condemnation.

Accepted Answer

Melvin's reading about the condemnation in the newspaper and his conﬁrming it by phone with a public oﬃcial give him reasonable grounds to believe the property will be taken.

Question 14

A liability assumed by a transferee is considered boot received by the transferor.

Accepted Answer

According to tax law, when a person transfers property and assumes a liability of the transferor, it is considered as "boot" which is considered as taxable gain to the transferor.

Question 15

Losses from involuntary conversions are never recognized.

Accepted Answer

Losses are recognized if the property is business or income-producing property. Personal casualty losses are also recognized (subject to limits) but not condemnation losses from personal-use assets.

Question 16

Alfred Ahern sold a truck with an adjusted basis of $6,000 for $1,500 to a salvage yard. He purchased a replacement truck two months later for $24,000. Alfred's basis in the new truck is $28,500.

Accepted Answer

ftis was a sale and not a like-kind exchange
 Alfred fully recognizes the loss on the sale of the old truck and the basis of the new truck is the cost of $24,000.

Question 17

If boot is received in a like-kind exchange, realized losses are not recognized but realized gains may be recognized.

Accepted Answer

Gain is recognized to the extent of the boot received but not to exceed the gain realized

Question 18

Unimproved land can be exchanged for an apartment house and qualify as a like-kind exchange.

Accepted Answer

Unimproved land can be exchanged for an apartment house and be a like-kind exchange

Question 19

fte general like-kind exchange rule is that there is nonrecognition of loss but recognition of gain.

Accepted Answer

the general rule is that there is nonrecognition of gain and loss.

Question 20

Ed Evans traded in a large lathe used in his business with an adjusted basis of $7,000 for a smaller lathe valued at
$8,000. In addition to the smaller lathe, Ed received $2,000 cash. Ed's recognized gain is $3,000.

Accepted Answer

the gain is recognized only to the extent of the cash received, of $2,000.

Quiz 11: Property Transactions: Nonrecognition of Gains and Losses