Exam 13: Property Transactions: Determination of Gain or Loss, basis Considerations, and Nontaxable Exchanges

Use the following data to determine the sales price of Etta's principal residence and the realized gain.She is not married.The sale of the old residence qualifies for the § 121 exclusion.

Melissa,age 58,marries Arnold,age 50,on June 1,2017.Melissa decides to sell her principal residence on August 1,2017,which she has owned and occupied for the past 30 years.Arnold has never owned a house.However,while he was married to Kelly who died 6 months prior to his marriage to Melissa,Kelly used the § 121 election on the sale of her residence in January 2015 to reduce her realized gain from $123,000 to $0.Kelly used the sales proceeds to pay off Arnold's gambling debts.Can Melissa elect the § 121 exclusion on the sale of her residence? What is the maximum § 121 exclusion available to Melissa and Arnold if they file a joint return?

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

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?

Edward,age 52,leased a house for one year in Memphis with an option to buy as his personal residence.At the end of the lease,he purchased the house.He lived there for an additional 26 months before his employer transferred him to Tucson.Expecting to be in Tucson for 18 to 24 months,he rented the Memphis house for 18 months with an option to extend on a month to month basis for an additional 6 months.At the end of the 18-month period,Edward's employer offered him a permanent position in Tucson as branch manager.The tenant who had been occupying Edward's house in Memphis purchased it at the end of the 24-month extended lease period.Is Edward eligible to elect exclusion treatment under § 121?

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

For the loss disallowance provision under § 267,related parties include certain family members,a shareholder and his or her controlled corporation (i.e.,greater than 50% in value of the corporation's outstanding stock),and a partner and his or her controlled partnership (i.e.,greater than 50% of the capital interests or profits interest in the partnership).

Ben sells stock (adjusted basis of $25,000) to his son,Ray,for its fair market value of $15,000.Ray gives the stock to his daughter,Trish,who subsequently sells it for $26,000.Ben's recognized loss is $0 and Trish's recognized gain is $1,000 ($26,000 - $15,000 - $10,000).

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.

Carlton purchases land for $550,000.He incurs legal fees of $10,000 and broker's commission of $28,000 associated with the purchase.He subsequently incurs additional legal fees of $25,000 in having the land rezoned from agricultural to residential.He subdivides the land and installs streets and sewers at a cost of $800,000.What is Carlton's basis for the land and the improvements?

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?

Arthur owns a tract of undeveloped land (adjusted basis of $145,000) which he sells to his son,Ned,for its fair market value of $105,000.What is Arthur's recognized gain or loss and Ned's basis in the land?

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).

Kelly inherits land which had a basis to the decedent of $95,000 and a fair market value of $50,000 on August 4,2017,the date of the decedent's death.The executor distributes the land to Kelly on November 12,2017,at which time the fair market value is $49,000.The fair market value on February 4,2018,is $45,000.In filing the estate tax return,the executor elects the alternate valuation date.Kelly sells the land on June 10,2018,for $48,000.What is her recognized gain or loss?

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

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.

On October 1,Paula exchanged an apartment building (adjusted basis of $375,000 and subject to a mortgage of $125,000) for another apartment building owned by Nick (fair market value of $550,000 and subject to a mortgage of $125,000).The property transfers were made subject to the mortgages.What amount of gain should Paula recognize?

Section 1033 (nonrecognition of gain from an involuntary conversion) applies to both gains and losses.

If a taxpayer purchases a business and the price exceeds the fair market value of the listed assets,how is the excess allocated among the purchased 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.