Exam 9: Nontaxable Exchanges

Mr. Lexon owns investment property with a $719,000 basis. If the property is worth only $500,000, Mr. Lexon would prefer a taxable disposition of the property over a like-kind exchange.

Mr. Bentley exchanged investment land subject to a $300,000 mortgage for commercial real estate subject to a $188,000 mortgage. Mr. Bentley is treated as paying $112,000 boot in the exchange.

Mrs. Brinkley transferred business property (FMV $340,200; adjusted tax basis $111,700) to M&W Inc. in exchange for 4,200 shares of M&W stock. Immediately after the exchange, M&W had 7,800 shares of outstanding stock. Compute M&W's recognized gain on its exchange of stock for property and determine M&W's tax basis in the property received from Mrs. Brinkley.

Bill contributed business realty ($375,000 FMV and $113,000 adjusted basis) to Zeta Inc. in exchange for Zeta common stock. Immediately after the exchange, Bill owned 53% of Zeta's outstanding stock. Compute gain recognized by Bill and by Zeta on this exchange.

If a taxpayer elected to defer a $13,000 gain realized on an involuntary conversion, the tax basis of the taxpayer's replacement property equals the cost of the property less $13,000.

A taxpayer who realizes a loss on the exchange of like-kind property can elect to recognize the loss.

Signo Inc.'s current year income statement includes a $21,000 gain realized on the exchange of an old business asset for a new business asset. If the exchange is nontaxable, Signo has a $21,000 favorable permanent book/tax difference.

Thirty years ago, Prescott Inc. realized a $16,200 gain on the exchange of an old building for a new building. Prescott included the gain in book income, but the exchange was nontaxable. This year, Prescott sold the new building for $250,000. At date of sale, the new building's book basis and tax basis had both been depreciated to zero. Which of the following statements is true?

Kornek Inc. transferred an old asset with a $200,000 adjusted tax basis plus $12,000 cash in exchange for a new asset worth $260,000. Which of the following statements is false?

A flood destroyed a business asset owned by Boochi Company. Boochi's adjusted tax basis in the asset was $87,100. Six months after the flood, Boochi used its $100,000 insurance settlement to replace the asset. Boochi can recognize a $12,900 gain or it can elect to defer gain recognition.

On January 21, 2009, Andy purchased 350 shares of Baker common stock for $24,500. On November 13, 2020, he sold the 350 shares for $7,250. On December 1, 2020, Andy purchased 350 shares of Baker common stock for $8,000. What is Andy's basis in these shares?

Sissoon Inc. exchanged a business asset for an investment asset. Both assets had a $620,000 appraised FMV. Sissoon's book basis in the business asset was $518,900, and its tax basis was $443,400. Compute Sissoon's book and tax gain if the business asset and investment asset were like-kind properties for tax purposes.Determine Sissoon's book and tax basis of the investment asset acquired in the nontaxable exchange properties for tax purposes.Compute Sissoon's book and tax gain if the business asset and investment asset were not like-kind properties for tax purposes.Determine Sissoon's book and tax basis of the investment asset acquired in the taxable exchange.

Luce Company exchanged investment land for a building to be used in its business. Luce's gain on the exchange was nontaxable (because the assets were like-kind) but was included in financial statement income. Which of the following statements is false?

Doppia Company transferred an old asset with a $68,750 adjusted tax basis in exchange for a new asset worth $90,000 and $10,000 cash. Which of the following statements is false?

The goodwill of one business is never of a like-kind to the goodwill of a different business.

Mr. Jamail transferred business personalty (FMV $187,000; adjusted tax basis $29,900) to J&K Partnership in exchange for a partnership interest. Which of the following statements is true?

Toffel Inc. exchanged investment land subject to a $240,000 mortgage for unencumbered farmland. If Toffel realized a $168,000 gain on the exchange, it must recognize the entire gain.

V&P Company exchanged unencumbered investment land for farmland subject to a $200,000 mortgage. If V&P realized a $168,000 gain on the exchange, it must recognize the entire gain.

On July 2, 2020, a tornado destroyed an asset owned by Leigh Inc., a calendar year taxpayer. Leigh's adjusted tax basis in the asset was $22,700, and the reimbursement from its property insurance company was $35,000. If Leigh wants to defer recognizing its $12,300 realized gain, it must replace the asset no later than December 31, 2021.

Mr. and Mrs. Eyre own residential rental property that they would like to dispose of in a nontaxable exchange. Which of the following would not qualify as like-kind property?