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Exam 15: Property Transactions: Nontaxable Exchanges

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Question 1

Multiple Choice

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Which of the following statements is correct for a § 1033 involuntary conversion of an office building which is destroyed by fire?

A) An election can be made to postpone gain on a § 1033 involuntary conversion only if the proceeds received are reinvested in qualifying property no later than two years after the end of the tax year in which a proceeds inflow is received that is large enough to produce a realized gain.
B) The postponement of realized gain in a § 1033 involuntary conversion is elective.
C) The functional use test is satisfied if a business warehouse is replaced with another business warehouse.
D) The taxpayer use test is satisfied if a shopping mall rented to tenants is replaced with an office building to be rented to tenants.
E) All of the above are correct.

F) A) and C)
G) A) and B)

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Question 2

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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.

A) True
B) False

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Question 3

Multiple Choice

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Evelyn, a calendar year taxpayer, lists her principal residence with a realtor on February 7, 2018, enters into a contract to sell on July 12, 2018, and sells i.e., the closing date) the residence on August 1, 2018. The realized gain on the sale is $225,000. Which date is the appropriate ending date in determining if the residence has been owned and used by the Evelyn as the principal residence for at least two years during the prior five-year period?

On October 1, Paula exchanged an apartment building adjusted basis of $375,000 and subject to a mortgage of $125,000) for another apartment building owned by Nick fair market value of $550,000 and subject to a mortgage of $125,000) . The property transfers were made subject to the mortgages. What amount of gain should Paula recognize?

Fran was transferred from Phoenix to Atlanta. She sold her Phoenix residence adjusted basis of $250,000) for a realized loss of $50,000 and purchased a new residence in Atlanta for $375,000. Fran had owned and lived in the Phoenix residence for 6 years. What is Fran's recognized gain or loss on the sale of the Phoenix residence and her basis for the residence in Atlanta?

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

Wyatt sells his principal residence in December 2018 and qualifies for the § 121 exclusion. He sells another principal residence in November 2019. Under no circumstance can Wyatt qualify for the § 121 exclusion on the sale of the second residence.

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.

Casualty losses and condemnation losses on the involuntary conversion of a personal residence receive the same tax treatment.

Lily exchanges a building she uses in her rental business for a building owned by Kendall, which she will use in her rental business. The adjusted basis of Lily's building is $120,000 and the fair market value is $170,000. Which of the following statements is correct?

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

Under what circumstances may a partial § 121 exclusion be available even though the taxpayer has used the § 121 exclusion within the two-year period preceding the sale of the current residence?

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

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.

Jared, a fiscal year taxpayer with a August 31st year-end, owns an office building adjusted basis of $800,000) that was destroyed by fire on December 24, 2018. If the insurance settlement was $950,000 received March 1, 2019) , what is the latest date that Jared can replace the office building in order to qualify for § 1033 nonrecognition of gain?

Which of the following satisfy the time period requirement for postponement of gain as a § 1033 nonrecognition of gain from an involuntary conversion) involuntary conversion?

The taxpayer must elect to have the exclusion of gain under § 121 sale of principal residence) apply.

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.

A taxpayer whose principal residence is destroyed in a fire can use both the § 121 sale of residence gain exclusion) and the § 1033 involuntary conversion postponement of gain) provisions.

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.