Question 1

If boot is received in a § 1031 like-kind exchange that results in some of the realized gain being recognized,the holding period for both the like-kind property and the boot received begins on the date of the exchange.

Accepted Answer

The holding period for the like-kind property received in a § 1031 exchange tacks onto the holding period of the property exchanged (i.e., it continues from the original property's holding period), whereas the holding period for the boot received begins on the date of the exchange.

Question 2

Under the taxpayer-use test for a § 1033 involuntary conversion,the taxpayer has less flexibility in qualifying replacement property than under the functional-use test.

Accepted Answer

The answer of Under the taxpayer-use test for a §...

Question 3

Section 1033 (nonrecognition of gain from an involuntary conversion) applies to both gains and losses.

Accepted Answer

Section 1033 primarily addresses the nonrecognition of gain for involuntary conversions, not losses. It allows taxpayers to defer recognition of gain if they reinvest the proceeds into similar property, but it does not specifically apply to losses in the same way.

Question 4

The amount realized does not include any amount received by the taxpayer that is designated as severance damages by both the government and the taxpayer.

Accepted Answer

The statement is true, the amount realized does not include any amount designated as severance damages by both the government and the taxpayer.

Question 5

If a taxpayer reinvests the net proceeds (amount received - related expenses) received in an involuntary conversion in qualifying replacement property within the statutory time period,it is possible to defer the recognition of the realized gain.

Accepted Answer

This is known as the "like-kind exchange" or "1031 exchange" rule and allows for the deferral of the realized gain through reinvestment in qualifying replacement property.

Question 6

The holding period of replacement property where the election to postpone gain is made includes the holding period of the involuntarily converted property.

Accepted Answer

According to IRS guidelines, the holding period of replacement property where the election to postpone gain is made includes the holding period of the involuntarily converted property. This means that the taxpayer can use the original holding period of the converted property to meet the one-year holding requirement for long-term capital gains treatment.

Question 7

Sidney,a calendar year taxpayer,owns a building (adjusted basis $450,000) in Columbus,OH,in which he conducts his retail computer sales business.The building is destroyed by fire on December 12,2015,and two weeks later he receives insurance proceeds of $600,000.Due to family ties,Sidney decides to move to Columbia,SC.He reinvests all of the insurance proceeds in a building in Columbia where he opens a retail computer sales business on April 2,2016.By electing § 1033,Sidney has no recognized gain and a basis in the new building of $450,000 ($600,000 cost - $150,000 postponed gain).

Accepted Answer

By electing § 1033, Sidney can postpone the gain on the destroyed building if he reinvest the proceeds within a certain period of time. Since he reinvested all the insurance proceeds in a new building and opened a retail computer sales business, he has no recognized gain and a basis in the new building of $450,000 ($600,000 cost - $150,000 postponed gain).

Question 8

A realized gain on an indirect (conversion into money) involuntary conversion of business property can be postponed,but a realized loss on an indirect involuntary conversion of business property cannot be postponed.

Accepted Answer

This is because according to the tax code, a realized gain from an involuntary conversion can qualify for replacement property and the gain can be deferred. However, a realized loss cannot be deferred or deducted as it is considered a casualty loss.

Question 9

The basis of boot received in a like-kind exchange is its fair market value,unless the realized gain is a smaller amount.

Accepted Answer

The basis of boot received in a like-kind exchange is added to the basis of the like-kind property received, and it does not directly take the fair market value as its basis. The basis adjustment reflects the gain recognized, not the fair market value of the boot.

Question 10

Cole exchanges an asset (adjusted basis of $15,000;fair market value of $25,000) for another asset (fair market value of $19,000).In addition,he receives cash of $6,000.If the exchange qualifies as a like-kind exchange,his recognized gain is $6,000 and his adjusted basis for the property received is $21,000 ($15,000 + $6,000 recognized gain).

Accepted Answer

The exchange does not qualify as a like-kind exchange because the fair market values of the exchanged assets are not equal. Therefore, Cole will have to recognize a gain of $10,000 ($25,000 - $15,000) on the exchange, and his adjusted basis for the property received will be $19,000.

Question 11

Gil's office building (basis of $225,000 and fair market value $275,000) is destroyed by a hurricane.Due to a 30% co-insurance clause,Gil receives insurance proceeds of $192,500 two months after the date of the loss.One month later,Gil uses the insurance proceeds to purchase a new office building for $275,000.His adjusted basis for the new building is $307,500 ($275,000 cost + $32,500 postponed loss).

Accepted Answer

The answer of Gil's office building (basis of $225,000 and...

Question 12

If boot is received in a § 1031 like-kind exchange,the recognized gain cannot exceed the realized gain.

Accepted Answer

In a § 1031 like-kind exchange, if boot (i.e. non-like-kind property, such as cash or debt relief) is received, the recognized gain can be no greater than the realized gain. This is known as the "gain recognition" rule.

Question 13

Terry exchanges real estate (acquired on August 25,2009) held for investment for other real estate to be held for investment on September 1,2015.None of the realized gain of $10,000 is recognized,and Terry's adjusted basis for the new real estate is a carryover basis of $80,000.Consequently,Terry's holding period for the new real estate begins on August 25,2009.

Accepted Answer

This is true according to the rules of Section 1031 of the Internal Revenue Code, which allows for the exchange of property held for investment or business use without immediate recognition of any realized gains. The adjusted basis of the new property is the carryover basis from the old property, and the holding period for the new property begins on the date the old property was acquired.

Question 14

Milt's building which houses his retail sporting goods store is destroyed by a flood.Sandra's warehouse which she is leasing to Milt to store the inventory of his business also is destroyed in the same flood.Both Milt and Sandra receive insurance proceeds that result in a realized gain.Sandra will have less flexibility than Milt in the type of building in which she can invest the proceeds and qualify for postponement treatment under § 1033 (nonrecognition of gain from an involuntary conversion).

Accepted Answer

The answer of Milt's building which houses his retail sporting...

Question 15

The surrender of depreciated boot (fair market value is less than adjusted basis) in a like-kind exchange can result in the recognition of loss.

Accepted Answer

If the fair market value of the boot surrendered in a like-kind exchange is less than its adjusted basis, it results in a recognized loss. This loss is then taken into account when calculating the gain or loss on the exchange.

Question 16

Dennis,a calendar year taxpayer,owns a warehouse (adjusted basis of $190,000) which is destroyed by a tornado in October 2015.He receives insurance proceeds of $250,000 in January 2016.If before 2019,Dennis replaces the warehouse with another warehouse costing at least $250,000,he can elect to postpone the recognition of any realized gain.

Accepted Answer

This is known as the involuntary conversion rule under section 1033 of the Internal Revenue Code. If Dennis replaces his warehouse with a property of similar use and cost within a certain time period, he can elect to defer the recognition of any realized gain from the destroyed property.

Question 17

An involuntary conversion results from the destruction (complete or partial),theft,seizure,requisition or condemnation,or the sale or exchange under threat or imminence of requisition or condemnation of the taxpayer's property.

Accepted Answer

This is the definition of involuntary conversion according to the IRS.

Question 18

When boot in the form of cash is given in a like-kind exchange,recognized gain is the greater of the boot or the realized gain.

Accepted Answer

Recognized gain in a like-kind exchange when boot is received is the lesser of the realized gain or the amount of boot received, not the greater.

Question 19

Shari exchanges an office building in New Orleans (adjusted basis of $700,000) for an apartment building in Baton Rouge (fair market value of $900,000).In addition,she receives $100,000 of cash.Shari's recognized gain is $100,000 and her basis for the apartment building is $800,000 ($700,000 adjusted basis + $100,000 recognized gain).

Accepted Answer

Shari's recognized gain is $300,000, which is the lesser of the gain realized ($300,000, calculated as the fair market value of the apartment building plus cash received [$900,000 + $100,000] minus the adjusted basis of the office building [$700,000]) or the boot received ($100,000). However, the correct calculation for the basis of the new property is the fair market value of the apartment building ($900,000) minus the gain not recognized ($200,000, which is the gain realized minus the boot received) or plus the loss if realized, which results in a basis of $700,000 for the apartment building, not $800,000.

Question 20

If a taxpayer exchanges like-kind property under § 1031 and assumes a liability associated with the property received,the taxpayer is considered to have received boot in the transaction.

Accepted Answer

The answer of If a taxpayer exchanges like-kind property under...

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