Exam 15: Property Transactions: Nontaxable Exchanges

Fran was transferred from Phoenix to Atlanta. She sold her Phoenix residence (adjusted basis of $250,000) for a realized loss of $50,000 and purchased a new residence in Atlanta for $375,000. Fran had owned and lived in the Phoenix residence for 6 years. What is Fran's recognized gain or loss on the sale of the Phoenix residence and her basis for the residence in Atlanta?

Livestock of different sexes can qualify for like-kind exchange treatment if the livestock has been held for over 24 months.

Betty owns a horse farm with 500 acres of land (adjusted basis of $600,000). Fifty acres of the land are condemned by the state for $400,000 in order to build a municipal stadium. Since the fair market value of Betty's farm is significantly decreased by the proximity to the future stadium, the state awards Betty $300,000 in severance damages. Betty does not use the $300,000 to restore the usefulness of the farm and all of the $700,000 ($400,000 + $300,000) proceeds are invested in the stock market. What is her recognized gain or loss associated with the receipt of the severance damages?

The surrender of depreciated boot (fair market value is less than adjusted basis) in a like-kind exchange can result in the recognition of loss.

For the following exchanges, indicate which qualify as like-kind property. a. Inventory of a sporting goods store in Charleston for inventory of an appliance store in Savannah. b. Inventory of a ladies dress shop in Cleveland for inventory of a ladies dress shop in Richmond.c. Investment land in Virginia Beach for office building in Williamsburg. d. Used automobile used in a business for a new automobile to be used in the business. e. Investment land in Paris for investment land in San Francisco. f. Shares of Texaco stock for shares of Exxon Mobil stock.

Under what circumstances may a partial § 121 exclusion be available even though the taxpayer has used the § 121 exclusion within the two-year period preceding the sale of the current residence?

In October 2017, Ben and Jerry exchange investment realty in a § 1031 like-kind exchange. Ben bought his real estate in 2006 while Jerry purchased his in 2009. In addition to the realty, Ben receives Pearl, Inc. stock worth $10,000 from Jerry. Ben's realized gain is $30,000. On what date does the holding period for Ben's realty received from Jerry begin? When does the holding period for the stock he receives begin?

Paula inherits a home on July 1, 2017 that had a basis in the hands of the decedent at death of $290,000 and a fair market value of $500,000 at the date of the decedent's death. She decides to sell her old principal residence, which she has owned and occupied for 9 years, with an adjusted basis of $125,000 and move into the inherited home. On September 16, 2017, she sells the old residence for $600,000. Paula incurs selling expenses of $30,000 and legal fees of $2,000. She decides to add a pool, deck, pool house, and recreation room to the inherited home at a cost of $100,000. These additions are completed and paid for on November 1, 2017. What is her recognized gain on the sale of her old principal residence and her basis in the inherited home?

Evelyn, a calendar year taxpayer, lists her principal residence with a realtor on February 7, 2017, enters into a contract to sell on July 12, 2017, and sells (i.e., the closing date) the residence on August 1, 2017. The realized gain on the sale is $225,000. Which date is the appropriate ending date in determining if the residence has been owned and used by the Evelyn as the principal residence for at least two years during the prior five-year period?

Weston sells his residence to Joanne on October 15, 2017. Indicate which of the following statements is correctly associated with § 121 (exclusion of gain on sale of principal residence).

Which of the following statements is correct for a § 1033 involuntary conversion of an office building which is destroyed by fire?

Dena owns 500 acres of farm land in southeastern Maryland. Her adjusted basis for the land is $480,000 and there is a $400,000 mortgage on the land. She exchanges the land for an office building owned by Chris in Newark, New Jersey. The building has a fair market value of $900,000. Chris assumes Dena's mortgage on the land. What is the amount of Dena's recognized gain or loss on the exchange?

Discuss the relationship between realized gain and boot received in a § 1031 like-kind exchange.

If the recognized gain on an involuntary conversion equals the realized gain because of a reinvestment deficiency, the basis of the replacement property will be more than its cost (cost plus realized gain).

The holding period of replacement property where the election to postpone gain is made includes the holding period of the involuntarily converted property.

Discuss the logic for mandatory deferral of realized gain or loss for a § 1031 like-kind exchange.

To qualify as a like-kind exchange, real property must be exchanged either for other real property or for personal property with a statutory life of at least 39 years.

Wyatt sells his principal residence in December 2017 and qualifies for the § 121 exclusion. He sells another principal residence in November 2018. Under no circumstance can Wyatt qualify for the § 121 exclusion on the sale of the second residence.

How does the replacement time period differ for the condemnation of real property used in a trade or business or held for investment when compared with that for other involuntary conversions?

If the taxpayer qualifies under § 1033 (nonrecognition of gain from an involuntary conversion) and the amount reinvested in replacement property exceeds the amount realized, the basis of the replacement property is: