Exam 9: Tax-Deferred Exchanges

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?

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

Which type of reorganization involves only one corporation?

A tax-deferred reorganization can involve all of the following except:

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 and Tree's realized gains or losses on the properties exchanged, respectively?

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?

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?

Sam's land was condemned for a sewage treatment plant.He received $600,000 for the land that had a basis of $650,000.What is his realized and recognized gain or (loss), respectively, on this involuntary conversion?

Sid's home was destroyed by fire.He had purchased the home 18 months ago for $950,000.He received $1,300,000 from his insurance company to replace the home.If he fails to rebuild the home or acquire a replacement home in the required time, how much gain must he recognize on this conversion?

Conrad corporation's warehouse was destroyed by a hurricane in September 2019.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 2019 for $700,000.What is Conrad's deductible loss or recognized gain?

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?

In 2019, Larry's car, which he purchased six years ago for $6,000, was demolished in a traffic accident.As a result of the delay caused by this accident, Larry missed a business meeting and lost out on an important sale on which he could have earned a $1,200 commission.When he arrived home, he found his house had been broken into and his personal video equipment currently worth $3,200 (original cost = $5,000) had been stolen, along with his baseball card collection valued at $2,000 (basis = $1,500).Larry's homeowner's policy covered only $3,000 of this theft loss.He had dropped the collision coverage on his auto insurance policy because that portion was too expensive, so he had no insurance coverage for his auto accident.His adjusted gross income is $82,000 and the fair market value of the car at the time of the accident was $8,000.How much can Larry deduct as an itemized deduction for his casualty and theft losses in 2019?

Elizabeth exchanges an office building valued at $400,000 with a $75,000 mortgage and adjusted basis of $180,000 for land valued at $275,000.What is Elizabeth's realized gain on the exchange?

Juan owned a small rental property, which was condemned by the county to expand a local park.His adjusted basis in the property was $40,000 and he received a payment of $75,000 from the county.A year later he purchased a similar piece of real estate for $70,000.What is Juan's recognized gain on the involuntary conversion of his rental property?

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?

The taxpayer-use test for deferral of gain on an involuntary conversion requires the taxpayer to acquire property that has the same function or use as the involuntarily converted property that he or she used prior to the conversion.

Sophie received a 30 percent interest in a general partnership in exchange for property valued at $35,000 (adjusted basis = $25,000) and services valued at $5,000.In addition, the partnership assumed the $10,000 liability on the property.What is Sophie's basis in her partnership interest?