Question 1

Rosilyn trades her old business-use car with an adjusted basis of $13,000 and an outstanding loan liability balance of $2,000 for a new business-use car valued at $9,000 plus $3,000 cash from Bob's Auto Sales and Loan Company. Bob assumes Rosilyn's loan balance. What is Rosilyn's basis in her new car?

Accepted Answer

The answer of Rosilyn trades her old business-use car with...

Question 2

Norman exchanges a machine he uses in his pool construction business for a used machine worth $6,000 to use in the same business. He purchased the machine 3 years ago for $22,000 and had taken depreciation of $9,000 on the machine. In the exchange, Norman also receives $3,000 of cash. As a result of the exchange,
I.Norman realizes a loss of $4,000 on the exchange.
II.Norman's basis in the acquired machine is $13,000.
​

Accepted Answer

The answer of Norman exchanges a machine he uses in...

Question 3

Roscoe receives real estate appraised at $200,000 and cash of $10,000 from Cathy in exchange for his investment realty with a basis of $170,000. Roscoe plans to hold the new realty for investment. What is his recognized gain?

Accepted Answer

Roscoe's recognized gain is the cash received, which is $10,000, as the real estate exchange qualifies for a like-kind exchange under IRS rules, deferring the gain on the real estate portion.

Question 4

Grant exchanges an old pizza oven from his business for a new oven. In addition to the old oven, which had a basis of $10,000, Grant pays $10,000. The new oven is valued at $22,000. What is Grant's basis in the new oven?

Accepted Answer

Grant's basis in the new oven is equal to the fair market value of the old oven ($10,000) plus the amount of cash paid ($10,000). Therefore, Grant's basis in the new oven is $20,000.

Question 5

Rosilyn trades her old business-use car with an adjusted basis of $13,000 and an outstanding loan liability balance of $2,000 for a new business-use car valued at $9,000 plus $3,000 cash from Bob's Auto Sales and Loan Company. Bob assumes Rosilyn's loan balance. How much boot does Rosilyn receive in the transaction?

Accepted Answer

Rosilyn receives $3,000 in cash and Bob assumes her $2,000 loan, totaling $5,000 in boot.

Question 6

Belinda exchanges investment real estate with Russell. Belinda's adjusted basis in her two-year old property is $280,000. The property is encumbered by a mortgage of $100,000 and has a fair market value of $320,000 when exchanged. Russell assumes that debt. Russell paid $80,000 cash for his property in 1999 and it is appraised at $150,000 on the day of the exchange. Russell pays Belinda enough in cash to balance the exchange. What is Belinda's basis in the new land?

Accepted Answer

Belinda's basis in the new land is calculated by taking her original basis in the property she gave up ($280,000), adding any cash she paid (in this case, Russell balanced the exchange with cash, so Belinda paid $0), and subtracting any cash she received. Since Russell assumed Belinda's $100,000 debt and the properties had a difference in value ($320,000 - $150,000 = $170,000), Russell had to pay Belinda $70,000 in cash to balance the exchange ($170,000 difference minus the $100,000 debt assumed). Therefore, Belinda's basis in the new property is her original basis minus the cash received, which is $280,000 - $70,000 (cash received) = $210,000. However, none of the provided options match this calculation, indicating a mistake in my explanation. The correct basis calculation should consider the fair market value of the property received and adjustments for any cash received or paid. Given the options and the scenario, the correct basis for Belinda in the new land should reflect the fair market value of the property she received adjusted for the exchange specifics, but without the correct calculation details provided in the options, there seems to be a misunderstanding in the explanation process.

Question 7

Roscoe receives real estate appraised at $200,000 and cash of $10,000 from Cathy in exchange for Roscoe's investment realty with a basis of $170,000. Roscoe plans to hold the new realty for investment. What is the amount realized for the property given up by Roscoe?

Accepted Answer

The amount realized is the sum of the fair market value of the real estate received ($200,000) plus the cash received ($10,000), totaling $210,000.

Question 8

Rosilyn trades her old business-use car with an adjusted basis of $13,000 and an outstanding loan liability balance of $2,000 for a new business-use car valued at $9,000 plus $3,000 cash from Bob's Auto Sales and Loan Company. Bob assumes Rosilyn's loan balance. What is Rosilyn's recognized gain on the transaction?

Accepted Answer

Rosilyn's recognized gain is calculated as the amount realized ($9,000 new car + $3,000 cash + $2,000 liability assumed by Bob = $14,000) minus the adjusted basis of the old car ($13,000), resulting in a $1,000 gain.

Question 9

Lindsey exchanges investment real estate parcels with Donna. Lindsay's adjusted basis in the property is $400,000, and it is encumbered by a mortgage liability of $200,000. Donna assumes the mortgage. Donna's property is appraised at $1,000,000 and is subject to a $100,000 liability. Lindsey assumes the liability. If no cash is exchanged, what is Lindsey's basis in the new real estate?

Accepted Answer

The answer of Lindsey exchanges investment real estate parcels with...

Question 10

Robert trades an office building located in Tennessee to John for an apartment complex located in New Jersey. Details of the two properties: $\begin{array}{lrr}
&\text { Robert } & \text { John } \
&\text { Tennessee } & \text { N. Jersey }\ 
\text { Fair Market Value } & \$ 9,000,000 & \$ 4,000,000 \
\text { Adjusted Basis } & 3,000,000 & 3,000,000 \
\text { Liabilities transferred with property } & 2,000,000 & -0 .
\end{array}$
 In addition, John pays Robert $3,000,000 cash as part of this transaction. What is the gain (loss) recognized by Robert in this transaction and what is his basis in the New Jersey property?
$\begin{array} { c r } 
\text { Gain Recognized } & \text { Adjusted Basis } \\end{array}$
A) $\begin{array} { c r } \$ 6,000,000 &&& \$ 4,000,000 \\end{array}$
B) $\begin{array} { c r } \$ 5,000,000 &&& \$ 3,000,000 \\end{array}$
C)$\begin{array} { c r }  \$ 3,000,000 &&& \$ 2,000,000 \\end{array}$
D)$\begin{array} { c r }  \$ 5,000,000 &&& \$ 4,000,000 \\end{array}$
E)$\begin{array} { c r } \text {  Some other amounts }
\end{array}$

Accepted Answer

The answer of Robert trades an office building located in...

Question 11

Rosilyn trades her old business-use luxury car with an adjusted basis of $13,000 and an outstanding loan liability balance of $2,000 for a new business-use economy car valued at $9,000 plus $3,000 cash from Bob's Auto Sales and Loan Company. Bob assumes Rosilyn's loan balance. What is Rosilyn's amount realized on the transaction?

Accepted Answer

The amount realized from the transaction includes the value of the new car ($9,000), the cash received ($3,000), and the loan balance assumed by Bob ($2,000), totaling $14,000.

Question 12

Rebecca trades in her four-wheel drive truck for a new one. Rebecca's truck cost $20,000 and has an $8,000 basis on the date of the trade-in. The price of the new truck is $27,000 and the dealer gives Rebecca a $10,000 trade in allowance on her old truck. She uses the trucks in her business. What is Rebecca's basis in the new truck?

Accepted Answer

The answer of Rebecca trades in her four-wheel drive truck...

Question 13

Rosilyn trades her old business-use car with an adjusted basis of $13,000 and an outstanding loan liability balance of $2,000 for a new business-use car valued at $9,000 plus $3,000 cash from Bob's Auto Sales and Loan Company. Bob assumes Rosilyn's loan balance. What is Rosilyn's realized gain on the transaction?

Accepted Answer

Rosilyn's realized gain is calculated by subtracting the adjusted basis of the old car from the sum of the value of the new car and the cash received, plus the loan balance assumed by Bob. This is ($9,000 + $3,000 + $2,000) - $13,000 = $14,000 - $13,000 = $1,000.

Question 14

Lindsey exchanges investment real estate parcels with Donna. Her adjusted basis in the property is $400,000, and it is encumbered by a mortgage liability of $200,000. Donna assumes the mortgage. Donna's property is appraised at $1,000,000 and is subject to a $100,000 liability. Lindsey assumes the liability. If no cash is exchanged, what is the amount of gain recognized by Lindsey?

Accepted Answer

When assets are exchanged, the gain or loss recognized is calculated by subtracting the adjusted basis of the asset given from the fair market value of the asset received. In this case, Lindsey's property has an adjusted basis of $400,000 and is being exchanged for Donna's property, which has an appraised value of $1,000,000. Therefore, Lindsey has a potential gain of $600,000. However, she is also assuming a liability of $100,000, which reduces the gain to $500,000. Since Lindsey's adjusted basis in the exchanged property is $400,000, she only recognizes the gain of $100,000 ($500,000 - $400,000). Therefore, the answer is B) $100,000.

Question 15

Matthew exchanges an investment apartment building for a parcel of land. The apartment building has a fair market value of $80,000 and an adjusted basis of $95,000. The land's value is $60,000. Matthew receives $20,000 cash in the exchange. What is Matthew's recognized gain or (loss) on the exchange and his basis in the land?
?
$\begin{array} { c c } 
\text { Gain (Loss) Recognized } & \text { Basis } \\end{array}$
A) $\begin{array} { c c } &\$ - 0 - &&&&&& \$ 75,000 \\end{array}$
B) $\begin{array} { c c } &\$ ( 15,000 ) &&&&&& \$ 65,000 \\end{array}$
C) $\begin{array} { c c } &\$ ( 35,000 ) &&&&&& \$ 85,000 \\end{array}$
D) $\begin{array} { c c } &\$ 20,000 &&&&&& \$ 30,000 \\end{array}$
E)$\begin{array} { c c } & \$ 15,000 &&&&&& \$ 35,000
\end{array}$

Accepted Answer

The answer of Matthew exchanges an investment apartment building for...

Question 16

Norman exchanges a machine he uses in his pool construction business for a used machine worth $6,000 to use in the same business. He purchased the machine 3 years ago for $22,000 and has taken depreciation of $9,000 on the machine. In the exchange, Norman also receives $3,000 of cash. As a result of the exchange,
I.Norman's basis in the acquired machine is $6,000.
II.Norman recognizes a loss of $4,000 on the exchange.
​

Accepted Answer

Norman's basis in the acquired machine is $6,000 (the fair market value of the machine he received) and he recognizes a loss of $4,000 on the exchange (the difference between his basis in the old machine ($22,000 - $9,000 = $13,000) and the fair market value of the new machine ($6,000) plus the cash received ($3,000)).

Question 17

Grant exchanges an old pizza oven from his business for a new oven. In addition to the old oven, which has a basis of $10,000, Grant pays $10,000 cash. The new oven is valued at $22,000. What is Grant's recognized gain or loss due on this transaction?

Accepted Answer

The recognized gain or loss is equal to the amount realized from the exchange minus the adjusted basis of the old oven. The amount realized is $22,000 (new oven) plus $10,000 (cash), which equals $32,000. The adjusted basis of the old oven is $10,000. Therefore, the recognized gain is $32,000 - $10,000 = $22,000. However, because Grant exchanged the old oven for a new oven, he can defer recognizing the gain under the like-kind exchange rules. Therefore, the recognized gain is only the amount of cash paid, which is $10,000, resulting in a recognized loss of $0. Answer choice A is incorrect because there is a recognized loss of $0. Answer choice C, D, and E are incorrect because they all assume that the recognized gain is $22,000, which is incorrect because of the like-kind exchange rules.

Question 18

Roscoe receives real estate appraised at $200,000 and cash of $10,000 from Cathy in exchange for Roscoe's investment realty with a basis of $170,000. What is his basis in the new real estate?

Accepted Answer

Roscoe's basis in the new real estate is determined by his original basis in the property he exchanged, which was $170,000. In a like-kind exchange, the basis of the property given up is transferred to the new property, adjusted for any additional cash received or paid. The cash received does not change the basis of the new property; it would only trigger recognition of gain to the extent of the cash received. Therefore, his basis in the new real estate remains $170,000.

Question 19

Cindy exchanges investment real estate with Russell. Cindy purchased her realty two years ago for $280,000, and it is encumbered by a mortgage of $100,000 and has a fair market value of $320,000 when exchanged. Russell paid $80,000 cash for his property in 1999 and it is appraised at $150,000 on the day of the exchange. Russell assumes the debt on his new land and pays Cindy enough in cash to balance the exchange. What is Cindy's recognized gain (loss) on the exchange?

Accepted Answer

To calculate Cindy's recognized gain (loss) on the exchange, we need to calculate her realized gain (loss) first:

Realized gain (loss) = FMV of the property received - Adjusted basis of the property given up

Adjusted basis = purchase price - accumulated depreciation - mortgage assumed
Adjusted basis of Cindy's property = $280,000 - 0 - $100,000 = $180,000

Realized gain = $320,000 - $180,000 = $140,000

Since Cindy is exchanging the property, she can defer the recognition of the realized gain under Section 1031 of the Internal Revenue Code. Therefore, her recognized gain on the exchange will be $-0- (choice A).

Question 20

Violet exchanges investment real estate with Russell. Violet's adjusted basis in her two-year old property is $280,000. The property is encumbered by a mortgage of $100,000 and has a fair market value of $320,000 when exchanged. Russell assumes that debt. Russell paid $80,000 cash for his property in 1999 and it is appraised at $150,000 on the day of the exchange. Russell pays Violet enough in cash to balance the exchange. What is Russell's recognized gain (loss) on the exchange?

Accepted Answer

Russell's realized gain on the exchange can be calculated as follows:

Fair market value of Russell's property = $150,000 
Less: Adjusted basis of Russell's property = $80,000

Realized gain = $70,000

However, in a like-kind exchange, any realized gain is not recognized for tax purposes if the exchange meets certain requirements under IRC Section 1031. In this case, the exchange qualifies for treatment as a like-kind exchange because both properties are investment real estate and both parties are exchanging property of similar value. Additionally, Russell is assuming the mortgage on Violet's property, which is not considered boot (cash or other property received in the exchange) for tax purposes. Therefore, Russell's recognized gain on the exchange is $-0-.

Quiz 12: Non-Recognition Transactions

Roscoe receives real estate appraised at $200,000 and cash of $10,000 from Cathy in exchange for his investment realty with a basis of $170,000. Roscoe plans to hold the new realty for investment. What is his recognized gain?

Grant exchanges an old pizza oven from his business for a new oven. In addition to the old oven, which had a basis of $10,000, Grant pays $10,000. The new oven is valued at $22,000. What is Grant's basis in the new oven?

Roscoe receives real estate appraised at $200,000 and cash of $10,000 from Cathy in exchange for Roscoe's investment realty with a basis of $170,000. Roscoe plans to hold the new realty for investment. What is the amount realized for the property given up by Roscoe?

Grant exchanges an old pizza oven from his business for a new oven. In addition to the old oven, which has a basis of $10,000, Grant pays $10,000 cash. The new oven is valued at $22,000. What is Grant's recognized gain or loss due on this transaction?

Roscoe receives real estate appraised at $200,000 and cash of $10,000 from Cathy in exchange for Roscoe's investment realty with a basis of $170,000. What is his basis in the new real estate?