Exam 15: Property Transactions: Nontaxable Exchanges

Myrna's personal residence (adjusted basis of $100,000) was condemned, and she received a condemnation award of $80,000. Myrna used the condemnation proceeds to purchase a new residence for $90,000. What is her recognized gain or loss and her basis in the new residence?

Which, if any, of the following exchanges qualifies for nonrecognition treatment as a § 1031 like-kind exchange?

Pam exchanges a rental building, which has an adjusted basis of $520,000, for investment land which has a fair market value of $700,000. In addition, Pam receives $100,000 in cash. What is the recognized gain or loss and the basis of the investment land?

Under the taxpayer-use test for a § 1033 involuntary conversion, the taxpayer has less flexibility in qualifying replacement property than under the functional-use test.

Shari exchanges an office building in New Orleans (adjusted basis of $700,000) for an apartment building in Baton Rouge (fair market value of $900,000). In addition, she receives $100,000 of cash. Shari's recognized gain is $100,000 and her basis for the apartment building is $800,000 ($700,000 adjusted basis + $100,000 recognized gain).

The taxpayer must elect to have the exclusion of gain under § 121 (sale of principal residence) apply.

Which of the following statements is correct?

Mandy and Greta form Tan, Inc., by transferring the following assets to the corporation in exchange for 5,000 shares of stock each. Mandy: Cash of $450,000 Greta: Land (worth $450,000; adjusted basis of $90,000). How much gain must Tan recognize on the receipt of these assets?

A taxpayer whose principal residence is destroyed in a fire can use both the § 121 (sale of residence gain exclusion) and the § 1033 (involuntary conversion postponement of gain) provisions.

Gil's office building (basis of $225,000 and fair market value $275,000) is destroyed by a hurricane. Due to a 30% co-insurance clause, Gil receives insurance proceeds of $192,500 two months after the date of the loss. One month later, Gil uses the insurance proceeds to purchase a new office building for $275,000. His adjusted basis for the new building is $307,500 ($275,000 cost + $32,500 postponed loss).

Moss exchanges a warehouse for a building he will use as an office building. The adjusted basis of the warehouse is $600,000 and the fair market value of the office building is $350,000. In addition, Moss receives cash of $150,000. What is the recognized gain or loss and the basis of the office building?

Leonore exchanges 5,000 shares of Pelican, Inc., stock for 2,000 shares of Blue Heron, Inc., stock. Leonore's adjusted basis for the Pelican stock is $300,000 and the fair market value of the Blue Heron stock is $350,000. Leonore's recognized gain is $0 and her adjusted basis for the Blue Heron stock is $300,000. ​

The maximum amount of the § 121 gain exclusion on sale of a principal residence is $250,000 for a single individual and $500,000 for a married couple.

What requirements must be satisfied to receive nontaxable exchange treatment under § 1031?

Edith's manufacturing plant is destroyed by fire on the afternoon of November 3, 2017. The adjusted basis is $800,000. The insurance company offers a settlement of $700,000. After protracted negotiations, Edith receives $825,000 on June 9, 2018. Edith is a fiscal year taxpayer whose tax year ends on June 30th. What is the latest date that Edith can invest the proceeds in qualifying replacement property and elect to defer the gain under § 1033?

Samuel's hotel is condemned by the City Housing Authority on July 5, 2017, for which he is paid condemnation proceeds of $950,000. He first received official notification of the pending condemnation on May 2, 2017. Samuel's adjusted basis for the hotel is $600,000 and he uses a fiscal year for tax purposes with a September 30 tax year-end. a. How much must Samuel reinvest in qualifying replacement property in order to postpone the recognition of realized gain? b. If Samuel reinvests the minimum amount required to avoid recognition of realized gain, what is his basis for the replacement property? c. What is qualifying replacement property? d. What is the earliest date that Samuel can acquire qualifying replacement property? e. What is the latest date that Samuel can acquire qualifying replacement property? f. How would the answer in e. change if Samuel's hotel had been destroyed in a flood?

What requirements must be satisfied for a delayed swap to qualify for § 1031 like-kind exchange treatment?

Owen and Polly have been married for five years. Owen sells investment property to Polly for a realized gain of $140,000. Owen's gain of $140,000 is not recognized and Polly's basis for the property she purchased is her cost.

A taxpayer who sells his or her principal residence at a realized loss can elect to recognize the loss even if a qualified residence is acquired during the statutory time period.

Evelyn's office building is destroyed by fire on July 12, 2017. The adjusted basis is $315,000. She receives insurance proceeds of $350,000 on August 31, 2017. Calculate the amount that Evelyn must reinvest in qualifying property in order that her recognized gain be $20,000. Assume she elects § 1033 (nonrecognition of gain from an involuntary conversion) postponement treatment.