Exam 12: Special Property Transactions

An involuntary conversion results in money received.If the replacement property is purchased within the two-year period,the basis of the new property is its cost less the deferred gain.

If a taxpayer trades a personal-use asset for another asset,the exchange does not qualify as a like-kind exchange.

The holding period of property received in a like-kind exchange:

Edith owns farm land in western Montana.Her adjusted basis is $300,000 and the land is subject to a mortgage of $150,000.She exchanges her land for investment land in Wyoming owned by Dale.The investment land is worth $450,000.Dale assumes Edith's mortgage on the land.What is the amount of Edith's recognized gain or loss on the exchange and what is her adjusted basis in the land she received?

The "similar or related in service or use" requirement for property involuntarily converted is less restrictive than the like-kind exchange requirements.

Matt and Opal were married in April of 2014.Matt has lived in his personal residence for fifteen years and Opal moved into the house after the marriage.Matt died in October 2014.Opal sold the house at a $300,000 gain in December,2014.How much of the gain can Opal exclude?

On December 28,2014,Misty sold 300 shares of Low Grade Inc.,(a publicly traded company)at a loss of $8,500.On January 5,2015,thinking that the stock price would rebound,Misty purchased 200 shares of Low Grade,Inc.for $7,000.What is the amount of the recognized loss on the December 28,2014 sale and what is Misty's basis in the 200 shares she purchased on January 5,2015?

The gross profit percentage is typically the gross profit divided by the contract price.

The exclusion of gain on the sale of a residence applies to only one sale every two years.The taxpayer is always ineligible for the exclusion if,during the two-year period ending on the date of sale of the present home,the taxpayer sold another home at a gain and excluded all or part of that gain no matter the reason for the sale.

Taxpayers are required to use the installment method for deferred payments unless the taxpayer elects not to use the installment method.

In what instances,concerning involuntary conversions,must a taxpayer file an amended tax return (Form 1040X)?

The adjusted basis of property received in a like-kind exchange can be calculated by taking the FMV of the property received less the gain postponed (plus loss postponed).

On an involuntary conversion in which the taxpayer does not buy replacement property within the replacement period,the gain on the involuntary conversion and any tax due must be reported: