Question 1

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

As long as both properties are held for productive use in a trade or business or for investment purposes, they can qualify as like-kind properties regardless of their locations.

Question 2

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

Under U.S. tax law, properties involved in a like-kind exchange must be located within the United States to qualify for like-kind exchange treatment.

Question 3

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

To qualify as a like-kind exchange, real property must be exchanged either for other real property, not personal property. The statutory life requirement is also based on the useful life of the property, not at least 39 years.

Question 4

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

Accepted Answer

Under § 1031, the nonrecognition of gains and losses is mandatory for both gains and losses when the transaction meets the requirements for a like-kind exchange.

Question 5

Why is it generally undesirable to pass property by death when its fair market value is less than basis?

Accepted Answer

The answer of Why is it generally undesirable to pass...

Question 6

Pat owns a 1965 Ford Mustang 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 Ford Mustang which...

Question 7

Identify two tax planning techniques that can be used to avoid the wash sale disallowance of loss.

Accepted Answer

The answer of Identify two tax planning techniques that can...

Question 8

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

The exchange of the land for a warehouse qualifies for like-kind exchange treatment as long as both properties are considered "like-kind" and are being held for investment or for productive use in a trade or business. The fact that Lola leases the warehouse to a tenant for business use does not affect the qualification of the exchange.

Question 9

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

Accepted Answer

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Question 10

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 these exchanges do not result in an immediate realization of income or loss, allowing the taxpayer to maintain continuity in their investment without immediate tax consequences. The deferral is related to the continuity of investment, not a change in the substance or form of the taxpayer's economic position.

Question 11

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 is received, the recognized gain cannot exceed the realized gain. This is because the boot is considered taxable and will increase the taxpayer's overall tax liability. Therefore, the recognized gain must be limited to the amount of realized gain in order to avoid additional taxation.

Question 12

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

The statement is incorrect. In a nontaxable exchange, the replacement property generally receives a carryover basis regardless of whether there is a realized gain or loss.

Question 13

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

Section 1031 of the Internal Revenue Code allows for the deferral of capital gains taxes on the exchange of like-kind property used in a trade or business or held for investment. However, it specifically excludes exchanges of inventory, stocks, bonds, notes, other securities, partnership interests, and certificates of trust. Personal property must be of the same general asset or product class to qualify as like-kind.

Question 14

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

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Question 15

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.
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Accepted Answer

Leonore's recognized gain is actually $50,000, which is the difference between the fair market value of the Blue Heron stock ($350,000) and her adjusted basis for the Pelican stock ($300,000). Therefore, her adjusted basis for the Blue Heron stock would be $350,000.

Question 16

Morgan owned a convertible that he had purchased two years ago for $46,000 and which he transfers to his sole proprietorship.How is the sole proprietorship's basis for the car calculated? What additional information does Morgan need?

Accepted Answer

The answer of Morgan owned a convertible that he had...

Question 17

​Nontaxable stock dividends result in no change to the total basis of the old and new stock,but the basis per share decreases.

Accepted Answer

Nontaxable stock dividends do not affect the total basis of old and new stock, but instead lower the basis per share as the cost is now spread over a greater number of shares.

Question 18

Jamie is terminally ill and does not expect to live much longer.Pondering the consequences of her estate,she decides how to allocate her property to her nephews.She makes a gift of depreciated property (i.e.,adjusted basis exceeds fair market value) to Will,a gift of appreciated property (i.e.,fair market value exceeds adjusted basis) to Jim,and leaves appreciated property to Sam in her will.Each of the properties has the same fair market value.From an income tax perspective,which nephew is her favorite?

Accepted Answer

The answer of Jamie is terminally ill and does not...

Question 19

​Explain how the sale of investment property at a loss to a brother is treated differently from a sale to a nephew.

Accepted Answer

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Question 20

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

Accepted Answer

In a nontaxable exchange, recognition of gain or loss is postponed until a taxable event occurs in the future, such as a sale. In a tax-free transaction, nonrecognition of gain or loss is permanent, meaning the property received in the transaction retains the same tax basis as the property given up.

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