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Exam 15: Property Transactions: Nontaxable Exchanges

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Question 41

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

A) If the functional use test applies, a warehouse used to store inventory can be replaced with a smaller building to be used to sell inventory.
B) If the taxpayer use test applies, an office building rented to tenants can be replaced with a shopping mall to be rented to tenants.
C) If the like-kind exchange test applies, a building used by the taxpayer for manufacturing can be replaced with an office building to be used in the taxpayer's business.
D) Only b. and c.
E) a., b., and c.

F) C) and E)
G) A) and E)

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Question 42

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Alex used the § 121 exclusion three months prior to his marriage to June.If June sells her principal residence four months after their marriage,she cannot use the § 121 exclusion.

A) True
B) False

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Question 43

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Milt's building which houses his retail sporting goods store is destroyed by a flood.Sandra's warehouse which she is leasing to Milt to store the inventory of his business also is destroyed in the same flood.Both Milt and Sandra receive insurance proceeds that result in a realized gain.Sandra will have less flexibility than Milt in the type of building in which she can invest the proceeds and qualify for postponement treatment under § 1033 (nonrecognition of gain from an involuntary conversion).

A realized gain on an indirect (conversion into money)involuntary conversion of business property can be postponed,but a realized loss on an indirect involuntary conversion of business property cannot be postponed.

Kitty,who is single,sells her principal residence,which she has owned and occupied for 8 years,for $375,000.The adjusted basis is $64,000,selling expenses are $22,000,and repairs to make the house more marketable are $7,000.Her recognized gain is $32,000.

In a nontaxable exchange,recognition is postponed.In a tax-free transaction,nonrecognition is permanent.

Under what circumstance is there recognition of some or all of the realized gain associated with the giving of boot by the taxpayer in a like-kind exchange?

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.

Molly exchanges a small machine (adjusted basis of $85,000; fair market value of $78,000) used in her business and investment land (adjusted basis of $10,000; fair market value of $15,000) for a large machine (fair market value of $93,000) to be used in her business in a like-kind exchange.What is Molly's recognized gain or loss?

Peach,Inc.,owns a delivery truck (cost of $35,000) on which depreciation of $21,000 has been deducted.The truck and $14,000 cash are used to acquire a new truck at a cost of $40,000.What is Peach's basis for the new truck?

Matt,who is single,sells his principal residence,which he has owned and occupied for 5 years,for $435,000.The adjusted basis is $140,000 and the selling expenses are $20,000.Three days after the sale he purchases another residence for $385,000.Matt's recognized gain is $25,000 and his basis for the new residence is $385,000.

If a taxpayer reinvests the net proceeds (amount received - related expenses)received in an involuntary conversion in qualifying replacement property within the statutory time period,it is possible to defer the recognition of the realized gain.

Livestock of different sexes can qualify for like-kind exchange treatment if the livestock has been held for over one year.

During 2012,Zeke and Alice,a married couple,decided to sell their residence,which had a basis of $200,000.They had owned and occupied the residence for 20 years.To make it more attractive to prospective buyers,they had the inside painted in April at a cost of $5,000 and paid for the work immediately.They sold the house in May for $800,000.Broker's commissions and other selling expenses amounted to $50,000.They purchased a new residence in July for $400,000.What is the recognized gain and the adjusted basis of the new residence?

Which of the following is correct?

Agnes,a calendar year taxpayer,lists her principal residence with a realtor on January 7,2012,enters into a contract to sell on March 5,2012,and sells (i.e.,the closing date) the residence on May 15,2012.The realized gain on the sale is $240,000.Which date is the appropriate ending date in determining if the residence has been owned and used by the taxpayer as the principal residence for at least two years during the prior five-year period?

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.

Lucinda,a calendar year taxpayer,owned a rental property with an adjusted basis of $312,000 in a major coastal city.Her property was condemned by the city government on October 12,2012.In order to build a convention center,Lucinda eventually received qualified replacement property from the city government on March 9,2013.This new property has a fair market value of $410,000.

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.

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