Question 1

Boot received in a like-kind exchange never causes loss to be recognized.

Accepted Answer

A) True 
 B)False

Question 2

Zoey contributed property with a tax basis of $25,000 and a fair market value of $60,000 to a newly formed partnership in exchange for a 40 percent interest.How much income must Zoey recognize as a result of the transaction?

Accepted Answer

A) $60,000 
B) $35,000 
C) $25,000 
D) 0

Question 3

Cal contributes property valued at $50,000 (adjusted basis = $30,000) to a partnership in exchange for a partnership interest valued at $40,000 and $10,000 cash.What is Cal's recognized gain or loss on these transfers?

Accepted Answer

A) 0 
B) $4,000 
C) $10,000 
D) $20,000

Question 4

Kaitlin purchased 100 shares of Norton Corporation stock for $11,500 on January 1, 2016.March 1, 2019, she purchased 30 additional shares of Norton Corporation for $3,000.On March 20, 2019, she sold 25 shares of the 100 shares she had purchased in 2016, for $2,500.What is Kaitlin's recognized gain or loss on the sale of the stock?

Accepted Answer

A) $500 recognized loss 
B) $375 recognized loss 
C) $375 recognized gain 
D) $0 recognized gain or loss

Question 5

If a taxpayer's personal residence is involuntarily converted, the taxpayer can only defer gain by acquiring a new residence in the required time period using IRC §1033.

Accepted Answer

A) True 
 B)False

Question 6

Both gain and loss are deferred in a wash sale.

Accepted Answer

A) True 
 B)False

Question 7

Juan owned a small rental property, which was condemned by the county to expand a local park.His adjusted basis in the property was $40,000 and he received a payment of $75,000 from the county.A year later he purchased a similar piece of real estate for $70,000.What is Juan's basis in the replacement property?

Accepted Answer

A) $40,000 
B) $45,000 
C) $50,000 
D) $70,000

Question 8

Dylan, Luke, and Hannah form a partnership.Dylan contributes land with a fair market value of $25,000 (basis of $15,000) in exchange for a 25% interest.Luke contributes equipment with a $35,000 fair market value (basis of $38,000) in exchange for a 35% interest, and Hannah contributes a building with a $100,000 fair market value (basis = $35,000) and a mortgage of $60,000 (assumed by the partnership) in exchange for a 40% interest.What is Hannah's basis in her partnership interest?

Accepted Answer

A) $0 
B) $1,000 
C) $5,000 
D) $65,000

Question 9

In early 2019, Conrad Corporation discovered their bookkeeper had embezzled $30,000 over the last three years at a rate of approximately $10,000 per year.Conrad also suffered uninsured hurricane damage of $40,000 late in 2019 in a presidentially declared disaster area.If Conrad wants to deduct its losses at the earliest time possible, what are the amounts (before any limitations) and year(s) of its loss deduction?

Accepted Answer

A) 2019 = $70,000 
B) 2018 = $30,000, 2019 = $40,000 
C) 2018 = $40,000, 2019 = $30,000 
D) 2017 = $10,000, 2018 = $10,000; 2017 = $50,000

Question 10

Sebastian contributed property with a tax basis of $30,000 and a fair market value of $75,000 to a new partnership in exchange for a 50 percent interest.The property was encumbered by a $50,000 mortgage that the partnership assumed.The other partner contributed $25,000 cash.What is Sebastian's basis in his partnership interest?

Accepted Answer

A) $5,000 
B) $25,000 
C) $30,000 
D) $50,000

Question 11

Which of the following would not be considered an involuntary conversion?

Accepted Answer

A) The theft of jewelry 
B) Sale of property in a flood zone 
C) Condemnation of a building for a highway 
D) Destruction of a home by a tornado

Question 12

Twining Corporation has some land it wants to trade for a building owned by Clopp Corporation.Clopp does not want to exchange the building because it wants to recognize its loss on the building.Twining, however, does not want to recognize its gain.What alternative(s) does Twining have that will allow it to avoid recognizing gain?

Accepted Answer

A) Twining can sell its land to a third party and take the money and purchase the building. 
B) Twining can have a third party purchase the building and have the third party trade for the land. 
C) Twining can complete a nonsimulataneous exchange within one year of identifying the desired property. 
D) All of the above are acceptable alternatives.

Question 13

A business airplane exchanged for a fleet of trucks, all used for the delivery of manufactured goods, is a qualifying like-kind exchange.

Accepted Answer

A) True 
 B)False

Question 14

Zandu Corporation exchanged a building (fair market value = $1,000,000, adjusted basis = $700,000) and two semi-tractor-trailers (fair market value = $300,000; adjusted basis = $225,000), all five years old, for land to build a new facility valued at $1,300,000.What is Zandu's realized and recognized gain and its basis in the land? Realized gain Recognized gain Basis of land

Accepted Answer

A) 0 0 $ 925,000 
B) $75,000 $75,000 $1,000,000 
C) $300,000 $300,000 $1,300,000 
D) $375,000 $75,000 $1,000,000

Question 15

Expected insurance settlements have no effect on the timing of the deduction for a casualty loss.

Accepted Answer

A) True 
 B)False

Question 16

Willow Corporation exchanged land valued at $250,000 (adjusted basis = $175,000) for a building owned by Tree Corporation valued at $350,000 (adjusted basis = $200,000) and $50,000 cash.In addition, Willow assumed the $150,000 mortgage on Tree's building.What are Willow's and Tree's recognized gain or loss, respectively?

Accepted Answer

A) 0, 0 
B) $50,000, $100,000 
C) $50,000, $150,000 
D) $75,000, $150,000

Question 17

David owns 600 shares of K Corporation stock when K is merged into Parent Corporation.David receives 500 shares of Parent Corporation stock (fair market value = $10,500) and $500 cash in exchange for his K Corporation stock.David's K stock had a basis of $8,000 and an $11,000 fair market value.What is David's realized and recognized gain, respectively?

Accepted Answer

A) $3,000 and $3,000 
B)  $3,000 and $2,500 
C) $2,500 and $500 
D) $3,000 and $500

Question 18

A condemnation is one type of involuntary conversion.

Accepted Answer

A) True 
 B)False

Question 19

Both gain and loss are deferred in a like-kind exchange.

Accepted Answer

A) True 
 B)False

Question 20

Dylan, Luke, and Hannah form a partnership.Dylan contributes land with a fair market value of $25,000 (basis of $15,000) in exchange for a 25% interest.Luke contributes equipment with a $35,000 fair market value (basis of $38,000) in exchange for a 35% interest, and Hannah contributes a building with a $100,000 fair market value (basis = $35,000) and a mortgage of $60,000 (assumed by the partnership) in exchange for a 40% interest.What is Dylan's basis in his partnership interest?

Accepted Answer

A) $15,000 
B) $25,000 
C) $30,000 
D) $60,000

Exam 9: Tax-Deferred Exchanges

Boot received in a like-kind exchange never causes loss to be recognized.

Zoey contributed property with a tax basis of $25,000 and a fair market value of $60,000 to a newly formed partnership in exchange for a 40 percent interest.How much income must Zoey recognize as a result of the transaction?

Cal contributes property valued at $50,000 (adjusted basis = $30,000) to a partnership in exchange for a partnership interest valued at $40,000 and $10,000 cash.What is Cal's recognized gain or loss on these transfers?

If a taxpayer's personal residence is involuntarily converted, the taxpayer can only defer gain by acquiring a new residence in the required time period using IRC §1033.

Both gain and loss are deferred in a wash sale.

Which of the following would not be considered an involuntary conversion?

A business airplane exchanged for a fleet of trucks, all used for the delivery of manufactured goods, is a qualifying like-kind exchange.

Expected insurance settlements have no effect on the timing of the deduction for a casualty loss.

A condemnation is one type of involuntary conversion.

Both gain and loss are deferred in a like-kind exchange.