Exam 9: Tax-Deferred Exchanges

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

Both gain and loss are deferred in a wash sale.

Sarah's building is condemned by the state on October 19, 2017. The building has a basis of $400,000 and Sarah receives $600,000 from the state on February 10, 2018. On January 20, 2019, Sarah purchases qualifying replacement property for $565,000. What is Sarah's realized and recognized gain or loss on the condemnation?

Trudo Corporation has a building that it needs to sell or exchange because of growth in its business. If Trudo sells the building, it will have a gain of $450,000. What is the amount of taxes that Trudi will avoid paying if it can exchange the building? The corporation has $1,000,000 of taxable income from operations for the current year.

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 Hannah's basis in her partnership interest?

James corporation exchanges a building (fair market value = $800,000, adjusted basis = $600,000) that has a $100,000 mortgage for another building owned by Pete Corporation (fair market value = $1,100,000, adjusted basis = $600,000) that is encumbered by a $400,000 mortgage. Each party assumes the mortgage on the building received. What are James's and Pete's realized gains on this exchange, respectively?

Which of the following is not a characteristic of involuntary conversions?

Parker exchanges an apartment building in Wisconsin for Cassidy's apartment building in Florida. Parker's building has a fair market value of $500,000, is encumbered by a $200,000 mortgage, and has a basis of $275,000. Cassidy's building has a fair market value of $350,000, is encumbered by a $50,000 mortgage, and has a basis of $175,000. They each assume the mortgages on the properties received. What are Parker's and Cassidy's amounts realized, their realized gain or loss, and their recognized gain or loss on the buildings exchanged?

Internal Revenue Code Section 351, relating to transfers to a controlled corporation, can apply to transfers to both a new and an existing corporation.

By what mechanism is a deferral of gain normally accomplished?

What is the control requirement to qualify a gain on transfer to a corporation for tax deferral?

A taxpayer must transfer a minimum required amount of property, along with any services performed, to include the stock received in meeting the control requirement for a corporate formation.