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Exam 15: Property Transactions: Nontaxable Exchanges

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Question 61

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Melissa,age 58,marries Arnold,age 50,on June 1,2012.Melissa decides to sell her principal residence on August 1,2012,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 2010 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?

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Melissa is eligible for a maximum § 121 ...

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Question 62

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The nonrecognition of gains and losses under § 1031 is mandatory for gains and elective for losses.

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B) False

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Question 63

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Lenny and Beverly have been married and living together in Lenny's home for 6 years.He lived in the home alone for 20 years prior to their marriage.They sell the home,which has an adjusted basis of $120,000,for $700,000.Lenny and Beverly plan to use the § 121 exclusion (exclusion of gain on sale of principal residence) .In Beverly's prior marriage to Dan,Dan sold his principal residence and used the § 121 exclusion.Beverly and Dan filed joint returns during their seven years of marriage.They had lived in Dan's house throughout their marriage.Dan's sale had occurred one year prior to the divorce.Lenny and Beverly purchase a replacement residence for $650,000 one month after the sale.What is the recognized gain and basis for the new home?

Which of the following types of exchanges of insurance contracts qualify for nonrecognition treatment under § 1035?

Jena owns land as an investor.She exchanges the land for a warehouse in which she will store the inventory of her business.The exchange doesqualify for like-kind exchange treatment.

After 5 years of marriage,Dave and Janet decided to get a divorce.As part of the divorce settlement,Janet transfers to Dave the house she purchased prior to their marriage.Janet's adjusted basis for the house is $125,000 and the fair market value is $200,000 on the date of the transfer.What are the tax consequences to Janet and to Dave as a result of the transfer?

An exchange of business or investment property for like-kind property with a § 267 related party cannot qualify as a § 1031 like-kind exchange.

Deidra has owned and occupied her principal residence for 10 years.Two and one-half years ago she married Doug who moved into her house.Doug has never owned a home.When Deidra is transferred to another city,she sells the house and has a realized gain of $425,000.Deidra can exclude the realized gain from her gross income under § 121 if she and Doug file a joint return.

Which of the following statements is correct with respect to qualified replacement property in a § 1033 involuntary conversion?

The taxpayer can elect to have the exclusion of gain under § 121 (sale of principal residence)not apply.

If boot is received in a § 1031 like-kind exchange and gain is recognized,which formula correctly calculates the basis for the like-kind property received?

Libby's principal residence is destroyed by a tornado.She is single and her realized gain is $360,000.Is it possible for Libby's recognized gain to be $0?

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

Karla owns 200 acres of farm land is southeastern Virginia.Her adjusted basis for the land is $240,000 and there is a $200,000 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 $450,000.Chris assumes Karla's mortgage on the land.What is the amount of Karla's recognized gain or loss on the exchange?

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

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?

Lily exchanges a building she uses in her rental business for a building owned by Kendall,her brother,which she will use in her rental business.The adjusted basis of Lily's building is $120,000 and the fair market value is $170,000.Which of the following statements is correct?

In October 2012,Ben and Jerry exchange investment realty in a § 1031 like-kind exchange.Ben bought his real estate in 2002 while Jerry purchased his in 2005.In addition to the realty,Ben receives Pearl,Inc.stock worth $10,000 from Jerry.Ben's realized gain is $30,000.On what date does the holding period for Ben's realty received from Jerry begin? When does the holding period for the stock he receives begin?

The nonrecognition treatment on realized gains of an indirect involuntary conversion of a factory building under § 1033 is elective,while a like-kind exchange of computers under § 1031 is mandatory.

For the following exchanges,indicate which qualify as like-kind property.