Exam 9: Tax-Deferred Exchanges

What is the amount of the casualty loss on a business truck that had a fair market value of $14,000 before an accident and $4,000 after an accident, if its adjusted basis is zero?

Marvin sold his sister, Sue, some stock for $20,000 purchased two years ago for $25,000. Nine months later, Sue sold the stock for $27,000. How much gain does Sue recognize on the sale?

Expected insurance settlements have no effect on the timing of the deduction for a casualty loss.

Billy Bob, who is single, owns a mountain estate in North Carolina with a basis of $900,000 that he used as his principal residence for the previous five years. On December 6, 2018 a major earthquake hit the area and the home was completely destroyed. Billy Bob received $1,450,000 from his insurance to rebuild or replace the home. Billy Bob decides to build a home in Charlotte near his brother. How much gain must he recognize if he (a) invests only $1,100,000 in the new home? (b) invests only $800,000 in the new home?

Willow Corporation exchanged land valued at $250,000 (adjusted basis = $175,000) for a building owned by Tree Corporation valued at $350,000 (adjusted basis = $200,000) and $50,000 cash. In addition, Willow assumed the $150,000 mortgage on Tree's building. What are Willow's and Tree's recognized gain or loss, respectively?

What is the functional-use test in an involuntary conversion?

1. Identify the following provisions as deferral (D) or exclusion (E) provisions. -Wash sale b. Sale of personal residence c. Involuntary conversion d. Transfers to a partnership by a partner e. Sale of qualifying small business stock f. Loss on personal auto sale g. Like-kind exchange h. Corporate reorganization

Sebastian contributed property with a tax basis of $30,000 and a fair market value of $75,000 to a new partnership in exchange for a 50 percent interest. The property was encumbered by a $50,000 mortgage that the partnership assumed. The other partner contributed $25,000 cash. What is Sebastian's basis in his partnership interest?

Liabilities assumed by either a partnership or corporation have identical effects on the owners' bases in their ownership interests.

Lucas transfers investment land to a corporation as part of a Section 351 transaction. The land has a fair market value of $75,000, an adjusted basis of $30,000, and is encumbered by a mortgage (from its original purchase five years ago by Lucas) of $40,000 that the corporation assumes. In exchange for the land, the corporation issues stock to Lucas worth $35,000. How much gain does Lucas recognize, what is Lucas's stock basis, and what is the basis of the land to the corporation, respectively?

What are the time limits imposed on a nonsimultaneous exchange to qualify as like kind?

Zoey contributed property with a tax basis of $25,000 and a fair market value of $60,000 to a newly formed partnership in exchange for a 40 percent interest. How much income must Zoey recognize as a result of the transaction?

The Bogtown Corporation owns a 20-year old factory building that it wants to exchange for land to build a new factory. The building has a fair market value of $2,200,000 and has a basis of $800,000. Dundee Corporation is willing to exchange some land it has held for expansion for the building.

A business airplane exchanged for a fleet of trucks, all used for the delivery of manufactured goods, is a qualifying like-kind exchange.

Four shareholders form a new corporation in exchange for stock with a fair market value of $1,000 per share. Benjamin transfers investment land (current fair market value of $35,000) that he purchased 10 year ago for $15,000. In exchange, Benjamin receives 30 shares of stock and $5,000 cash. Andrew transfers a machine with a basis of $45,000 and a fair market value of $35,000. Andrew receives 30 shares of stock and $5,000 cash. Emily transfers a rental office building (current fair market value of $45,000) that she purchased 20 years ago for $60,000. Its current basis is $15,000 after recognition of $45,000 in depreciation expense. The corporation assumes the $20,000 balance on the original mortgage and Emily receives 25 shares of stock from the corporation in the exchange. Jackson provided the legal services to organize the corporation (value $5,000) and contributes $10,000 in cash in exchange for 15 shares of stock. What is Jackson's basis in the stock he received?

Cal exchanges an apartment building (including land) with an adjusted basis of $55,000 (and fair market value of $90,000) for a piece of undeveloped land valued at $80,000 and $10,000 cash. As a result of the exchange, Carl paid $14,000 of fees. What is Carl's recognized gain on the exchange?

A transfers machines valued at $170,000 (basis = $150,000) along with $30,000 cash to AB Corporation and B transfers real property valued at $320,000 (basis = $310,000) to the corporation. A receives 40 percent of the outstanding stock and B receives 60 percent. B also receives $20,000 from the corporation. What is A's basis for his AB stock?

Conrad corporation's warehouse was destroyed by a hurricane in September 2018. The estimated fair market value before the hurricane was $750,000 and Conrad's adjusted basis in the warehouse was $450,000. Insurance paid $725,000 as a result of this event. Conrad purchased a new Warehouse in December of 2018 for $700,000. What is Conrad's deductible loss or recognized gain?

For a nonsimultaneous exchange to qualify for like-kind provisions, the taxpayer must identify the property to be acquired within 90 days and actually close the transactions within 180 days.

On August 20, 2018, the offices of Cobb Company, a calendar-year taxpayer, were destroyed by a tornado. The building had a fair market value before the tornado of $1,200,000 and a basis of $675,000. Cobb Company received $1,200,000 from its insurance company on December 10, 2018 to make repairs or replace the building. On January 2, 2021, Cobb Company finally invests $1,100,000 in a qualifying replacement building. What is Cobb's realized and recognized gain or loss on this involuntary conversion.