Exam 15: Property Transactions: Nontaxable Exchanges

If boot is received in a § 1031 like-kind exchange that results in some of the realized gain being recognized, the holding period for both the like-kind property and the boot received begins on the date of the exchange.

The nonrecognition of gains and losses under § 1031 is mandatory for gains and elective for losses.

Discuss the relationship between the postponement of realized gain under § 1031 (like-kind exchanges) and the adjusted basis and holding period for the replacement property.

As part of the divorce agreement, Tyler transfers his ownership interest in their personal residence to Lupe. The house had been jointly owned by Tyler and Lupe and the adjusted basis is $520,000. At the time of the transfer to Lupe, the fair market value is $800,000. What is the recognized gain to Tyler, and what is Lupe's basis for the house?

To be eligible to elect postponement of gain treatment for an involuntary conversion, what are the three tests for qualifying replacement property?

Nancy and Tonya exchanged assets. Nancy gave Tonya her personal residence with an adjusted basis of $280,000 and a fair market value of $560,000. The house has a mortgage of $200,000 which is assumed by Tonya. Tonya gave Nancy a yacht used in her business with an adjusted basis of $250,000 and a fair market value of $360,000. What is Tonya's realized and recognized gain?

Which of the following types of exchanges of insurance contracts qualify for nonrecognition treatment under § 1035?

Deidra has owned and occupied her principal residence for 10 years. Two and one-half years ago she married Doug who moved into her house. Doug has never owned a home. When Deidra is transferred to another city, she sells the house and has a realized gain of $425,000. Deidra can exclude the realized gain of $425,000 from her gross income under § 121 if she and Doug file a joint return.

Joyce, a farmer, has the following events occur during the tax year. Which of the events qualify as an involuntary conversion under § 1033 (nonrecognition of gain from an involuntary conversion)?

Eunice Jean exchanges land held for investment located in Rolla, Missouri, for land to be held for investment located near Madrid, Spain. Her basis for the land given up is $450,000 and the fair market value of the land received is $500,000. Eunice Jean also receives cash of $45,000. ​ a.What is Eunice Jean's recognized gain? b.What is her basis for the land received?

Chaney exchanges a truck used in her business for making deliveries for a smaller more fuel-efficient truck to be used in her business for making deliveries. The adjusted basis for her truck is $32,000. The smaller truck has a fair market value of $33,000. In addition, Chaney receives cash of $4,000. a.Calculate Chaney's realized and recognized gain or loss. b.Calculate Chaney's basis for the assets she received.

At a particular point in time, a taxpayer can have two principal residences for § 121 exclusion purposes.

Kendra owns a home in Atlanta. Her company transfers her to Chicago on January 2, 2017, and she sells the Atlanta house in early February 2017. She purchases a residence in Chicago on February 3, 2017. On December 15, 2017, Kendra's company transfers her to Los Angeles. In January 2018, she sells the Chicago residence and purchases a residence in Los Angeles. Because multiple sales have occurred within a two-year period, § 121 treatment does not apply to the sale of the second home.

Molly exchanges a small machine (adjusted basis of $85,000; fair market value of $78,000) used in her business and investment land (adjusted basis of $10,000; fair market value of $15,000) for a large machine (fair market value of $93,000) to be used in her business in a like-kind exchange. What is Molly's recognized gain or loss?

Gains and losses on nontaxable exchanges are deferred because the tax law recognizes that nontaxable exchanges result in a change in the substance but not the form of the taxpayer's relative economic position.

The basis of boot received in a like-kind exchange is its fair market value, unless the realized gain is a smaller amount.

Discuss the treatment of realized gains from involuntary conversions.

Cole exchanges an asset (adjusted basis of $15,000; fair market value of $25,000) for another asset (fair market value of $19,000). In addition, he receives cash of $6,000. If the exchange qualifies as a like-kind exchange, his recognized gain is $6,000 and his adjusted basis for the property received is $21,000 ($15,000 + $6,000 recognized gain).

If the taxpayer qualifies under § 1033 (nonrecognition of gain from an involuntary conversion), makes the appropriate election, and the amount reinvested in replacement property is less than the amount realized, realized gain is:

In determining the basis of like-kind property received, postponed losses are: