Exam 9: Tax-Deferred Exchanges

The loss on the total destruction of business property is always its adjusted basis regardless of fair market value.

Sean inherited a farm his grandfather had purchased 50 years ago for $40,000. It was valued at $1,000,000 when his grandfather died but has a current value of $1,100,000. Sean did not like farming so he traded the farm for an apartment building valued at $950,000 owned by Jean that has a basis of $700,000. In addition, Sean received $150,000 in cash from Jean to finalize 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 AB Corporation's basis for the real property?

Bertam transfers property with a $50,000 mortgage, a fair market value of $350,000, and a basis of $200,000 for stock valued at $300,000. If the corporation assumes the mortgage, what is Bertram's basis in the stock received in this qualifying Section 351 transaction?

David owns 600 shares of K Corporation stock when K is merged into Parent Corporation. David receives 500 shares of Parent Corporation stock (fair market value = $10,500) and $500 cash in exchange for his K Corporation stock. David's K stock had a basis of $8,000 and an $11,000 fair market value. What is David's realized and recognized gain, respectively?

Both gain and loss are deferred in a like-kind exchange.

Dylan, Luke, and Hannah form a partnership. Dylan contributes land with a fair market value of $25,000 (basis of $15,000) in exchange for a 25% interest. Luke contributes equipment with a $35,000 fair market value (basis of $38,000) in exchange for a 35% interest, and Hannah contributes a building with a $100,000 fair market value (basis = $35,000) and a mortgage of $60,000 (assumed by the partnership) in exchange for a 40% interest. What is the partnership's basis in the building it received from Hannah?

Which of the following is not a characteristic of a like-kind exchange?

Stan and Billie have decided to divorce. As part of the divorce settlement, Billie received stock valued at $200,000 that had a basis of $120,000; Stan received their home that had a basis of $240,000 but a fair market value at the time of the divorce of $400,000. Two years after the divorce, Billie sells the stock for $300,000 and a year later Stan sells the home for $600,000 after the twins leave for college. a. How much is Billie's realized and recognized gain or loss on the sale of the stock? b. How much is Stan's realized and recognized gain or loss on the sale of the home.

The holding period for boot in a like-kind exchange begins on the date of the exchange.

All of the following are deferral provisions except:

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 are A's and B's recognized gains, respectively, on these transfers?

On January 31, year 6, Roy sold investment property he purchased five years ago for $10,000 to Hal for $18,000 Hal made a $8,000 down payment on the date of sale, a $6,000 payment on January 31 of year 2 and the balance on January 31, year 3. In addition, the Hal paid 6 percent interest on the unpaid balance. How much income should Roy recognize in years 1, 2, and 3 assuming he used the installment method?

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 AB Corporation's basis for the machines?

Mary and Doris form MD general partnership. Mary transfers a building with a fair market value of $800,000 and a basis of $400,000 that is encumbered by a $100,000 mortgage that the partnership assumes in exchange for a 50 percent interest in the general partnership. Doris contributes equipment valued at $900,000 with a basis of $500,000 that is encumbered by a $200,000 liability that the partnership assumes in exchange for the other 50 percent general partnership interest. What are Mary and Doris's realized and recognized gains and their bases in their partnership interests. What is the partnership's basis in the contributed assets?

Which of the following is not a divisive reorganization?

If a shareholder contributes property to a corporation, but receives nothing in exchange for the property, what are the tax consequences to the shareholder and the corporation?

As part of a divorce decree, Janet must give her ex-spouse Herman her half-interest in stock with a total value of $120,000 (total basis = $70,000) in exchange for his half-interest in their home with a total value of $150,000 and a basis of $130,000. What are Janet and Herman's realized and recognized gains or losses on this exchange? Janet: Realized Recognized Herman: Realized Recognized

Cal contributes property valued at $50,000 (adjusted basis = $30,000) to a partnership in exchange for a partnership interest valued at $40,000 and $10,000 cash. What is Cal's recognized gain or loss on these transfers?

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. How much gain does Emily recognize?