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.

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.

The exchange of unimproved real property located in Topeka (KS) for improved real property located in Atlanta (GA) does not qualify as a like-kind exchange.

Lynn purchases a house for $52,000. She converts the property to rental property when the fair market value is $115,000. After deducting depreciation (cost recovery) expense of $1,130, she sells the house for $120,000. What is her recognized gain or loss?

Kendra owns a home in Atlanta. Her company transfers her to Chicago on January 2, 2018, and she sells the Atlanta house in early February 2018. She purchases a residence in Chicago on February 3, 2018. On December 15, 2018, Kendra's company transfers her to Los Angeles. In January 2019, 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.

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

Wade is a salesman for a real estate development company. Because he is the "salesperson of the year," he is permitted to purchase a lot from the developer for $90,000. The fair market value of the lot is $150,000 and the developer's adjusted basis is $100,000. Wade must recognize a gain of $10,000 ($100,000 developer's adjusted basis- $90,000 cost to Wade), and his adjusted basis for the lot is $100,000 ($90,000 cost + $10,000 recognized gain).

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

Evelyn, a calendar year taxpayer, lists her principal residence with a realtor on February 7, 2018, enters into a contract to sell on July 12, 2018, and sells (i.e., the closing date) the residence on August 1, 2018. 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?

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?

Why is it generally undesirable to pass property by death when its fair market value is less than basis?

Which of the following statements is false?

Discuss the effect of a liability assumption on the seller's amount realized and the buyer's adjusted basis.

In a deductible casualty or theft, the basis of property involved is reduced by the amount of insurance proceeds received and by any resulting recognized loss.

Mona purchased a business from Judah for $1,000,000. Judah's records and an appraiser provided her with the following information regarding the assets purchased: What is Mona's adjusted basis for the land, building, and equipment?

Lump-sum purchases of land and a building are allocated on the basis of the relative fair market values of the individual assets acquired.

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

Alice owns land with an adjusted basis of $610,000, subject to a mortgage of $350,000. On April 1, Alice sells her land subject to the mortgage for $650,000 in cash, a note for $600,000, and property with a fair market value of $120,000. What is the amount realized?

The basis for gain and loss of personal use property converted to business use is the lower of the adjusted basis or the fair market value on the date of conversion.

Alice owns land with an adjusted basis of $305,000, subject to a mortgage of $175,000. On April 1, 2018, Alice sells her land subject to the mortgage for $325,000 in cash, a note for $300,000, and property with a fair market value of $60,000. What is Alice's amount realized on this sale?