Question 1

In a nontaxable exchange,the replacement property is assigned a carryover basis if there is a realized gain,but receives a new basis if there is a realized loss.

Accepted Answer

In a nontaxable exchange,the replacement property is assigned a carryover basis for both a realized gain and a realized loss.

Question 2

In a nontaxable exchange,recognition is postponed.In a tax-free transaction,nonrecognition is permanent.

Accepted Answer

In a nontaxable exchange, recognition of the gain or loss is postponed but will eventually be recognized in a future taxable transaction. In a tax-free transaction, nonrecognition of the gain or loss is permanent, meaning it will never be recognized for tax purposes.

Question 3

Livestock of different sexes can qualify for like-kind exchange treatment if the livestock has been held for over 24 months.

Accepted Answer

Livestock of different sexes do not qualify as like-kind property.

Question 4

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

The answer of Shari exchanges an office building in New...

Question 5

Leonore exchanges 5,000 shares of Pelican,Inc. ,stock for 2,000 shares of Blue Heron,Inc. ,stock.Leonore's adjusted basis for the Pelican stock is $300,000 and the fair market value of the Blue Heron stock is $350,000.Leonore's recognized gain is $0 and her adjusted basis for the Blue Heron stock is $300,000.

Accepted Answer

The answer of Leonore exchanges 5,000 shares of Pelican,Inc. ,stock...

Question 6

Abby exchanges an SUV that she has held for personal use plus $24,000 for a new SUV which she will use exclusively in her sole proprietorship business.This exchange qualifies for nontaxable exchange treatment.

Accepted Answer

Nontaxable exchange treatment does not apply to personal use property.It applies to investment property and trade or business property.

Question 7

Lola owns land as an investor.She exchanges the land for a warehouse which she leases to a tenant who uses it to store his business inventory.The exchange does qualify for like-kind exchange treatment.

Accepted Answer

Both assets are in the real estate category.

Question 8

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

Cole's recognized gain and basis are calculated as follows:
Amount realized ($19,000 + $6,000)$ 25,000
Adjusted basis (15,000)
Realized gain $ 10,000
Recognized gain (lesser of boot received or realized gain)$ 6,000
FMV of like-kind property received $ 19,000
Less: postponed gain (4,000)
Adjusted basis of like-kind property received $ 15,000

Question 9

Gains and losses on nontaxable exchanges are deferred because the tax law recognizes that nontaxable exchanges result in a change in the substance but not the form of the taxpayer's relative economic position.

Accepted Answer

Gains and losses on nontaxable exchanges are deferred because the tax law recognizes that nontaxable exchanges result in a change in the form but not the substance of the taxpayer's relative economic position.

Question 10

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

When boot in the form of cash is given in a nontaxable exchange,any realized gain is not recognized.

Question 11

Pat owns a 1965 Mustang car which he uses for personal use.He purchased it four years ago for $22,000,and it currently is worth $27,000.He exchanges it for a 1979 Triumph Spitfire convertible worth $27,000.Pat's recognized gain is $0 and his adjusted basis for the convertible is $22,000.

Accepted Answer

The answer of Pat owns a 1965 Mustang car which...

Question 12

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 a taxpayer surrenders a depreciated boot (property that does not qualify for like-kind exchange treatment) in a like-kind exchange, they may be required to recognize a loss equal to the difference between the adjusted basis and the fair market value of the boot. This loss is not allowed to be offset against any gain realized on the exchange.

Question 13

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 its fair market value.The realized gain has no effect on the basis of boot received.

Question 14

An exchange of two items of personal property (personalty)that belong to different general business asset classes qualifies for nonrecognition under § 1031 as long as both properties are used in the taxpayer's trade or business.

Accepted Answer

Both property used in a trade or business and property held for investment can qualify for § 1031 like­kind exchange treatment.However,for personalty to qualify,the properties must be in the same general business asset class.For example,light general-purpose and heavy general-purpose trucks are in different general business asset classes.Thus,an exchange of a truck in one class for a truck in the other class would not qualify.

Question 15

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

Accepted Answer

The realized gain serves as a ceiling on the amount of recognized gain.If the boot received exceeds the realized gain,the recognized gain is limited to the realized gain.

Question 16

The nonrecognition of gains and losses under § 1031 is mandatory for gains and elective for losses.

Accepted Answer

The nonrecognition provisions of § 1031 like­kind exchanges are mandatory for both gains and losses.

Question 17

A building located in Virginia (used in business)exchanged for a building located in France (used in business)cannot qualify for like-kind exchange treatment.

Accepted Answer

Real property located in the United States exchanged for foreign real property does not qualify as like-kind property.

Question 18

The exchange of unimproved real property located in Topeka (KS)for improved real property located in Atlanta (GA)does not qualify as a like-kind exchange.

Accepted Answer

Both properties are realty and are located in the United States.

Question 19

Kate exchanges land held as an investment for land and a building owned by Clark,to be used in her business.If Clark is Kate's father,her realized gain of $150,000 must be recognized because they are related parties.

Accepted Answer

Like-kind exchanges can occur between related parties.Thus,at the date of exchange,none of Kate's realized gain is recognized.Although not discussed in the text,there is a holding period requirement (two years)for related parties.Should Clark dispose of the land he received within the following two­year period,Kate's postponed gain of $150,000 must be recognized.

Question 20

To qualify as a like-kind exchange,real property must be exchanged either for other real property or for personal property with a statutory life of at least 39 years.

Accepted Answer

Real property must be exchanged for other real property.

Quiz 15: Property Transactions: Nontaxable Exchanges

In a nontaxable exchange,the replacement property is assigned a carryover basis if there is a realized gain,but receives a new basis if there is a realized loss.

In a nontaxable exchange,recognition is postponed.In a tax-free transaction,nonrecognition is permanent.

Livestock of different sexes can qualify for like-kind exchange treatment if the livestock has been held for over 24 months.

Abby exchanges an SUV that she has held for personal use plus $24,000 for a new SUV which she will use exclusively in her sole proprietorship business.This exchange qualifies for nontaxable exchange treatment.

Lola owns land as an investor.She exchanges the land for a warehouse which she leases to a tenant who uses it to store his business inventory.The exchange does qualify for like-kind exchange treatment.

Gains and losses on nontaxable exchanges are deferred because the tax law recognizes that nontaxable exchanges result in a change in the substance but not the form of the taxpayer's relative economic position.

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.

Pat owns a 1965 Mustang car which he uses for personal use.He purchased it four years ago for $22,000,and it currently is worth $27,000.He exchanges it for a 1979 Triumph Spitfire convertible worth $27,000.Pat's recognized gain is $0 and his adjusted basis for the convertible is $22,000.

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.

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

An exchange of two items of personal property (personalty)that belong to different general business asset classes qualifies for nonrecognition under § 1031 as long as both properties are used in the taxpayer's trade or business.

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

The nonrecognition of gains and losses under § 1031 is mandatory for gains and elective for losses.

A building located in Virginia (used in business)exchanged for a building located in France (used in business)cannot qualify for like-kind exchange treatment.

The exchange of unimproved real property located in Topeka (KS)for improved real property located in Atlanta (GA)does not qualify as a like-kind exchange.

Kate exchanges land held as an investment for land and a building owned by Clark,to be used in her business.If Clark is Kate's father,her realized gain of $150,000 must be recognized because they are related parties.

To qualify as a like-kind exchange,real property must be exchanged either for other real property or for personal property with a statutory life of at least 39 years.

Quiz 15: Property Transactions: Nontaxable Exchanges

In a nontaxable exchange,the replacement property is assigned a carryover basis if there is a realized gain,but receives a new basis if there is a realized loss.

In a nontaxable exchange,recognition is postponed.In a tax-free transaction,nonrecognition is permanent.

Livestock of different sexes can qualify for like-kind exchange treatment if the livestock has been held for over 24 months.

Abby exchanges an SUV that she has held for personal use plus $24,000 for a new SUV which she will use exclusively in her sole proprietorship business.This exchange qualifies for nontaxable exchange treatment.

Lola owns land as an investor.She exchanges the land for a warehouse which she leases to a tenant who uses it to store his business inventory.The exchange does qualify for like-kind exchange treatment.

Gains and losses on nontaxable exchanges are deferred because the tax law recognizes that nontaxable exchanges result in a change in the substance but not the form of the taxpayer's relative economic position.

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.

Pat owns a 1965 Mustang car which he uses for personal use.He purchased it four years ago for $22,000,and it currently is worth $27,000.He exchanges it for a 1979 Triumph Spitfire convertible worth $27,000.Pat's recognized gain is $0 and his adjusted basis for the convertible is $22,000.

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.

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

An exchange of two items of personal property (personalty)that belong to different general business asset classes qualifies for nonrecognition under § 1031 as long as both properties are used in the taxpayer's trade or business.

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

The nonrecognition of gains and losses under § 1031 is mandatory for gains and elective for losses.

A building located in Virginia (used in business)exchanged for a building located in France (used in business)cannot qualify for like-kind exchange treatment.

The exchange of unimproved real property located in Topeka (KS)for improved real property located in Atlanta (GA)does not qualify as a like-kind exchange.

Kate exchanges land held as an investment for land and a building owned by Clark,to be used in her business.If Clark is Kate's father,her realized gain of $150,000 must be recognized because they are related parties.

To qualify as a like-kind exchange,real property must be exchanged either for other real property or for personal property with a statutory life of at least 39 years.

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