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

The bank forecloses on Lisa's apartment complex. The property had been pledged as security on a nonrecourse mortgage, whose principal amount at the date of foreclosure is $750,000. The adjusted basis of the property is $480,000, and the fair market value is $750,000. What is Lisa's recognized gain or loss?

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).

The fair market value of property received in a sale or other disposition is the price at which property will change hands between a willing seller and a willing buyer when neither is compelled to sell or buy.

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.

Katrina, age 58, rented (as a tenant) the house that was her principal residence from January 1, 2018 through December 31, 2019. She purchased the house on January 1, 2020, for $150,000 and continued to occupy it through June 30, 2021. She leased it to a tenant from July 1, 2021, through December 31, 2022. On January 1, 2022, she sells the house for $350,000. She incurs a realtor's commission of $20,000. Calculate her recognized gain if her objective is to minimize the recognition of gain and she does not intend to acquire another residence.

The basis of inherited property usually is its fair market value on the date of the decedent's death.

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

Valarie purchases a rental house and land for $180,000 during a depressed real estate market. Appraisals place the value of the house at $140,000 and the land at $60,000 (a total of $200,000). What is Valarie's basis in the house?

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?

Marsha transfers her personal use automobile to her business (a sole proprietorship). The car's adjusted basis is $30,000 and the fair market value is $16,000. No cost recovery had been deducted by Marsha, since she held the car for personal use. Determine the adjusted basis of the car to Marsha's sole proprietorship including the basis for cost recovery.

An office building with an adjusted basis of $320,000 was destroyed by fire on December 30, 2018. On January 11,2019, 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, 2019, 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?

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.

On February 1, Karin purchases real estate for $375,000. The annual property taxes of $5,040 are payable on December 31. Realizing that she will pay the property taxes for the entire year, Karin remits $374,580 to the seller at closing. Karin's adjusted basis for the real estate is:

Realized gain or loss is measured by the difference between the amount realized from the sale or other disposition of property and the property's adjusted basis at the date of disposition.

For a corporate distribution of cash or other property to a shareholder, when does dividend income or a return of capital result?

Jared, a fiscal year taxpayer with a August 31st year-end, owns an office building (adjusted basis of $800,000) that was destroyed by fire on December 24, 2018. If the insurance settlement was $950,000 (received March 1, 2019), what is the latest date that Jared can replace the office building in order to qualify for § 1033 nonrecognition of gain?

On September 18, 2018, Jerry received land and a building from Ted as a gift. Ted had purchased the land and building on March 5, 2015, and his adjusted basis and the fair market value at the date of the gift were as follows: Asset Adjusted Basis FMV Land $150,000 $200,000 Building 90,000 100,000 Ted paid no gift tax on the transfer to Jerry. a. Determine Jerry's adjusted basis and holding period for the land and building. b. Assume instead that the FMV of the land was $89,000 and the FMV of the building was $60,000. Determine Jerry's adjusted basis and holding period for the land and building.

Which of the following might motivate a taxpayer to try to avoid like-kind exchange treatment?

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:

Tariq sold certain U.S. Government bonds and State of Oregon bonds at a loss to offset short-term capital gain from a previous transaction. He felt that the U.S. Government and State of Oregon bonds were "good" investments, so he repurchased identical securities within one week. Do these transactions constitute wash sales? If the bond sales resulted in the recognition of gain (rather than loss), would the wash sale provisions prevent the gains from being recognized?