Exam 13: A: Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 1

A factory building owned by Amber, Inc.is destroyed by a hurricane.The adjusted basis of the building was $400,000 and the appraised value was $425,000.Amber receives insurance proceeds of $390,000.A factory building is constructed during the nine-month period after the hurricane at a cost of $450,000.What is the recognized gain or loss and what is the basis of the new factory building?

If boot is received in a § 1031 like-kind exchange, the recognized gain cannot exceed the realized gain.

A realized gain on an indirect (conversion into money) involuntary conversion of business property can be postponed, but a realized loss on an indirect involuntary conversion of business property cannot be postponed.

An exchange of two items of personal property (personalty) that belong to different general business asset classes qualifies for nonrecognition under § 1031 as long as both properties are used in the taxpayer's trade or business.

The amount of a corporate distribution qualifying for capital recovery treatment which exceeds the recipient's stock basis is treated as an ordinary gain.

The adjusted basis for a taxable bond purchased at a premium is reduced if the amortization election is made.The amount of the amortized premium is treated as an interest deduction.

Karen purchased 100 shares of Gold Corporation stock for $11,500 on January 1, 2004. In the current tax year, she sells 25 shares of the 100 shares purchased on January 1, 2004, for $2,500.Twenty-five days earlier, she had purchased 30 shares for $3,000.What is Karen's recognized gain or loss on the sale of the stock, and what is her basis in the 30 shares purchased 25 days earlier?

If there is an involuntary conversion (i.e., casualty, theft, or condemnation) of the taxpayer's principal residence, the realized gain may be postponed as a § 1033 involuntary conversion or excluded as a § 121 sale of a principal residence.

Agnes, a calendar year taxpayer, lists her principal residence with a realtor on January 7, 2012, enters into a contract to sell on March 5, 2012, and sells (i.e., the closing date) the residence on May 15, 2012. The realized gain on the sale is $240,000. Which date is the appropriate ending date in determining if the residence has been owned and used by the taxpayer as the principal residence for at least two years during the prior five-year period?

To qualify for the § 121 exclusion, the property must have been owned by the taxpayer for the 5 years preceding the date of sale and used by the taxpayer as the principal residence for the last 2 of those years.

A realized loss whose recognition is postponed results in the temporary recovery of more than the taxpayer's cost or other basis.

Alex used the § 121 exclusion three months prior to his marriage to June.If June sells her principal residence four months after their marriage, she cannot use the § 121 exclusion.

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)?

Pat owns a 1965 Mustang car which he uses for personal use.He purchased it four years ago for $22,000, and it currently is worth $27,000.He exchanges it for a 1979 Triumph Spitfire convertible worth $27,000.Pat's recognized gain is $0 and his adjusted basis for the convertible is $22,000.

Al owns stock with an adjusted basis of $100,000 and a fair market value of $300,000.He gives the stock to Jane on July 1, 2011.When Jane dies, the fair market value of the stock is $900,000.Jane's will provides that Al is to receive the stock.Which of the following is false?

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:

If losses are disallowed in a related party transaction, the holding period for the buyer includes the holding period of the seller.

Taylor inherited 100 acres of land on the death of his father in 2012.A Federal estate tax return was filed and this land was valued therein at $650,000, its fair market value at the date of the father's death.The father had originally acquired the land in 1966 for $112,000 and prior to his death he had expended $20,000 on permanent improvements.Determine Taylor's holding period for the land.

An office building with an adjusted basis of $320,000 was destroyed by fire on December 30, 2012.On January 11, 2013, the insurance company paid the owner $450,000.The fair market value of the building was $500,000, but under the co-insurance clause, the insurance company is responsible for only 90 percent of the loss.The owner reinvested $410,000 in a new office building on February 12, 2013, that was smaller than the original office building.What is the recognized gain and the basis of the new building if § 1033 (nonrecognition of gain from an involuntary conversion) is elected?

Mike's basis in his stock in Tan Corporation is $75,000.He receives nontaxable stock rights (fair market value of $20,000) when the value of the stock is $100,000.What is the basis for the stock rights?