Question 1

All of the following are true except:
A) A nonsimultaneous exchange may never qualify as a like-kind exchange.
B) Nonrecognition of gains and losses is mandatory if the exchange is a like-kind exchange.
C) A loss may be recognized on non-like-kind property (boot) if the taxpayer transfers the boot in an otherwise like-kind exchange.
D) The holding period of like-kind property received includes the holding period of the property exchanged.

Accepted Answer

A nonsimultaneous exchange can qualify as like-kind exchange if the transactions are interdependent.

Question 2

In a nontaxable exchange, Henri traded in a truck having an adjusted basis of $8,500 and a FMV of $10,000, for a new truck having a FMV of $15,000. In addition, Henri paid cash of $5,000. What is Henri's basis in the new truck?
A) $5,000
B) $8,500
C) $13,500
D) $15,000

Accepted Answer

In a nontaxable exchange, the basis of the new property acquired is the same as the adjusted basis of the property given up, plus any additional cash paid. Therefore, Henri's basis in the new truck is $8,500 (adjusted basis of old truck) + $5,000 (cash paid) = $13,500.

Question 3

Laurie owns land held for investment. The land's FMV is $150,000. Laurie's basis in the land is $130,000. Laurie exchanges the land, plus $20,000 of cash, for a warehouse owned by Trey. The warehouse is worth $210,000, but is subject to a mortgage of $40,000 which Laurie will assume. Trey's basis in the warehouse is $120,000. Laurie's basis in the warehouse received will be
A) $150,000.
B) $170,000.
C) $190,000.
D) $210,000.

Accepted Answer

To figure out Laurie's new basis in the warehouse received, we need to calculate the realized gain and the recognized gain.

Realized gain = Fair Market Value (FMV) of warehouse received ($210,000) - Adjusted Basis of land given up ($130,000) - Cash paid ($20,000) = $60,000

Recognized gain = Realized gain ($60,000) - Mortgage assumed by Laurie ($40,000) = $20,000

Laurie's new basis in the warehouse received = Trey's basis in the warehouse ($120,000) + recognized gain ($20,000) = $140,000

Therefore, the correct answer is C) $190,000, which is the sum of the mortgage assumed ($40,000) and Laurie's new basis in the warehouse received ($140,000).

Question 4

Rosa exchanges business equipment with a $60,000 adjusted basis for a like-kind piece of equipment with a $100,000 FMV and $20,000 of marketable securities. What is Rosa's basis for the new equipment?
A) $60,000
B) $80,000
C) $100,000
D) $120,000

Accepted Answer

This transaction qualifies as a like-kind exchange with boot received. $60,000 basis of property exchanged - $20,000 boot received + $20,000 gain recognized = $60,000

Question 5

Kai owns an apartment building held for investment purposes. The apartment building is worth $500,000, although it is subject to a mortgage of $100,000. Kai's basis in the apartment building is $380,000. Kai exchanges the apartment building for an office building. The office building has an FMV of $350,000. Kai receives $50,000 cash in addition to receiving the office building, and the other party assumes the apartment building mortgage. What is Kai's recognized gain on this exchange?
A) $0
B) $50,000
C) $120,000
D) $150,000

Accepted Answer

Kai's realized gain can be calculated as follows:

FMV of the office building + cash received - mortgage assumed = $350,000 + $50,000 - $100,000 = $300,000

Kai's recognized gain equals the realized gain, limited by either the amount of cash received or the amount of gain realized. In this case, the recognized gain is limited by the amount of gain realized, which is $300,000.

Therefore, Kai's recognized gain on the exchange is $300,000 - $180,000 (Kai's adjusted basis in the apartment building) = $120,000.

Question 6

Glen owns a building that is used in business. The building is worth $200,000, but is subject to a mortgage of $40,000. Glen's basis in the building is $120,000. Glen exchanges the building for investment land worth $150,000 plus $10,000 cash. In addition, the other party assumes the mortgage which will be held for investment. Glen must recognize a gain of
A) $0.
B) $10,000.
C) $50,000.
D) $80,000.

Accepted Answer

To determine the gain recognized in an exchange, we need to compare the amount realized with the adjusted basis of the property being exchanged. In this case, Glen exchanged a building with a fair market value of $200,000 and an adjusted basis of $120,000 for investment land worth $150,000 plus $10,000 cash. The other party also assumed the mortgage of $40,000, which will be held for investment.

The amount realized in this exchange includes the fair market value of the investment land ($150,000) plus the cash received ($10,000) plus the mortgage assumed ($40,000), totaling $200,000.

To calculate the adjusted basis of the building being exchanged, we need to start with Glen's original basis of $120,000 and adjust for any improvements or depreciation taken. Since no additional information is given about improvements or depreciation, we can assume that the adjusted basis remains at $120,000.

Therefore, Glen's realized gain is $200,000 (amount realized) minus $120,000 (adjusted basis) equals $80,000. Since the property being exchanged is business property (building) and the property received is investment property (land), this exchange is not like-kind and does not qualify for nonrecognition under Section 1031. Therefore, Glen must recognize the entire gain of $80,000. The correct answer is C.

Question 7

Bobbie exchanges business equipment (adjusted basis $160,000) for other business equipment that has a FMV of $140,000. Bobbie also receives $30,000 cash. Bobbie's basis in the new equipment is
A) $130,000.
B) $140,000.
C) $160,000.
D) $170,000.

Accepted Answer

This transaction qualifies as a like-kind exchange with boot received. The gain realized is $170,000 (FMV of new equipment plus $30,000 cash) - $160,000 adjusted basis of old equipment = $10,000. She must recognize gain to the extent of the lesser of the boot received or the realized gain so the full $10,000 realized gain is recognized. The basis of the new equipment is [$160,000 (old basis) - 30,000 (boot received) + 10,000 (gain recognized)] = $140,000 or the FMV of property received less unrecognized gain of $0 = $140,000.

Question 8

Daniella exchanges business equipment with a $100,000 adjusted basis for $10,000 cash and business equipment with a $96,000 FMV. What is the amount of gain recognized on the exchange?
A) $0
B) $4,000
C) $6,000
D) $10,000

Accepted Answer

This transaction qualifies as a like-kind exchange with boot received. Amount Realized ($10,000 + $96,000) - Adjusted Basis ($100,000) = $6,000 gain realized. Gain recognized to the lesser of realized gain ($6,000) or boot received ($10,000).

Question 9

Gena exchanges land held as an investment with a $60,000 basis for other land with a $80,000 FMV and a motorcycle with a $10,000 FMV. The acquired land is to be held for investment and the motorcycle is for personal use. What is the amount of recognized gain?
A) $0
B) $10,000
C) $20,000
D) $30,000

Accepted Answer

This transaction qualifies as a like-kind exchange with boot received. The realized gain is $30,000 [($80,000 + $10,000) amount realized - $60,000 adjusted basis]. Gain is recognized to the extent of the lesser of gain realized or boot received-the motorcycle ($10,000) is non-like-kind property and is considered boot.

Question 10

Which of the following statements is not true with regard to like-kind exchanges?
A) Nonrecognition of gains and losses is mandatory if the exchange is a like-kind exchange.
B) The holding period of like-kind property received includes the holding period of the property exchanged.
C) A loss is always recognized if the taxpayer transfers non-like-kind personal use property (e.g. a personal use car) in an otherwise like-kind exchange.
D) The basis of property received in an exchange is equal to the basis of the property exchanged less the boot received plus the gain recognized and less any loss recognized.

Accepted Answer

While gain or loss equal to the difference between the FMV and the adjusted basis of the non-like-kind property surrendered must ordinarily be recognized, if non-like-kind property is a personal use asset, the loss is not recognized.

Question 11

Dean exchanges business equipment with a $120,000 adjusted basis for $40,000 cash and business equipment with a $140,000 FMV. What is the amount of gain which Dean recognizes on the exchange?
A) $0
B) $20,000
C) $40,000
D) $60,000

Accepted Answer

This transaction qualifies as a like-kind exchange with boot received. Amount Realized ($40,000 + $140,000) - Adjusted Basis ($120,000) = $60,000 gain realized. Gain is recognized to the extent of boot received-$40,000.

Question 12

Jason owns a warehouse that is used in business. The FMV of the warehouse is $200,000 (basis $120,000), and the warehouse is subject to a mortgage of $40,000. Jason exchanges the warehouse for land valued at $150,000. The other party also pays him $10,000 cash and assumes the mortgage on the warehouse. Jason's basis in the land received will be
A) $120,000.
B) $150,000.
C) $180,000.
D) $200,000.

Accepted Answer

The answer of Jason owns a warehouse that is used...

Question 13

Bob owns a warehouse that is used in business while Rebecca owns land. Bob exchanges the warehouse for the land, which will be held for investment. The FMV of the warehouse is $440,000 (basis $240,000), but the warehouse is subject to a mortgage of $80,000, which is assumed by Rebecca. Bob receives $40,000 cash and the land, which has a FMV of $320,000. Bob realizes a gain (loss) on the exchange of
A) $80,000.
B) $120,000.
C) $190,000.
D) $200,000.

Accepted Answer

The answer of Bob owns a warehouse that is used...

Question 14

Emily owns land for investment purposes that has a FMV of $300,000 (basis of $260,000). She exchanges the land, plus $40,000 cash, for a warehouse to be used in her business. The warehouse is worth $420,000, but is subject to a mortgage of $80,000 which Emily will assume. The gain realized by Emily on the exchange is
A) $40,000.
B) $80,000.
C) $120,000.
D) $160,000.

Accepted Answer

A)The taxpayer receives a warehouse worth $420,000,but in exchange gives up land with an adjusted basis of $260,000 and $40,000 of cash and assumes an $80,000 liability,resulting in the $40,000 realized gain.

Question 15

Pamela owns land for investment purposes. The land is worth $300,000 (basis of $260,000 to Pamela). Pamela exchanges the land, plus $20,000 cash, for a warehouse to be used in her business. The FMV of the warehouse is $400,000, but the warehouse is subject to a mortgage of $80,000, which is assumed by Pamela. Pamela must recognize a gain of
A) $ 0.
B) $ 40,000.
C) $ 120,000.
D) $ 140,000.

Accepted Answer

Like-kind property was exchanged. Pamela received no boot so none of the gain is recognized.

Question 16

Landry exchanged land with an adjusted basis of $50,000 for another parcel of land worth $35,000 plus $10,000 of cash. Landry held the original land for investment purposes and will do the same with the new parcel. Due to the exchange, Landry will recognize
A) $10,000 gain.
B) $5,000 gain.
C) $5,000 loss.
D) $0.

Accepted Answer

This transaction qualifies as a like-kind exchange with boot received. A loss is realized on the exchange ($45,000 amount realized less $50,000 adjusted basis). The receipt of boot results in gain recognition only when gain has been realized on the transaction. There is no recognition in the case of loss.

Question 17

A owns a ranch in Wyoming, which B offers to purchase. A is not willing to sell the ranch but is willing to exchange the ranch for an apartment complex in Louisiana. The complex is available for sale. B purchases the apartment complex in Louisiana from C and transfers it to A in exchange for A's ranch. The ranch and the complex each have a $1,000,000 fair market value. Which of the following is true?
A) The transaction qualifies as a like-kind exchange for B but not for A.
B) The transaction qualifies as a like-kind exchange for both B and A.
C) The transaction qualifies as a like-kind exchange for A but not for B.
D) The transaction does not qualify as a like-kind exchange for either B or A.

Accepted Answer

The exchange is like-kind for A because she exchanges real property used in business (the ranch) for investment property (the complex) in a direct exchange. The transaction is not a like-kind exchange for B because she acquired the apartment complex for resale.

Question 18

Yael exchanges an office building worth $150,000 for investment land worth $175,000. He also provided stock worth $25,000. Yael's adjusted basis in the building and stock is $180,000 and $11,000, respectively. How much gain or loss will Yael recognize on the exchange?
A) $0
B) ($30,000)
C) ($16,000)
D) $14,000

Accepted Answer

This transaction qualifies as a like-kind exchange. As part of the exchange, Yael exchanged non-like-kind property (the stock). He will recognized the gain on the stock, but cannot recognize the loss realized on the like-kind property.

Question 19

Rolf exchanges an office building worth $150,000 for investment land worth $175,000. He also provided stock worth $25,000. Rolf's adjusted basis in the building and stock is $130,000 and $11,000, respectively. How much gain will Rolf recognize on the exchange?
A) $0
B) $14,000
C) $20,000
D) $34,000

Accepted Answer

This transaction qualifies as a like-kind exchange with boot paid by the taxpayer. The stock exchanged by Rolf is not qualifying like-kind property so its gain must be recognized in the normal manner.

Question 20

If there is a like-kind exchange of property between related parties, how long do they have to wait to dispose of the property received in order to avoid having to recognize any gain on the exchange?
A) 6 months
B) 1 year
C) 2 years
D) no waiting period

Accepted Answer

Exchanges of property between related parties are not like-kind exchanges under current law if either party disposes of the property within two years of the exchange.

Quiz 12: Property Transactions: Nontaxable Exchanges

All of the following are true except:

In a nontaxable exchange, Henri traded in a truck having an adjusted basis of $8,500 and a FMV of $10,000, for a new truck having a FMV of $15,000. In addition, Henri paid cash of $5,000. What is Henri's basis in the new truck?

Rosa exchanges business equipment with a $60,000 adjusted basis for a like-kind piece of equipment with a $100,000 FMV and $20,000 of marketable securities. What is Rosa's basis for the new equipment?

Bobbie exchanges business equipment (adjusted basis $160,000) for other business equipment that has a FMV of $140,000. Bobbie also receives $30,000 cash. Bobbie's basis in the new equipment is

Daniella exchanges business equipment with a $100,000 adjusted basis for $10,000 cash and business equipment with a $96,000 FMV. What is the amount of gain recognized on the exchange?

Gena exchanges land held as an investment with a $60,000 basis for other land with a $80,000 FMV and a motorcycle with a $10,000 FMV. The acquired land is to be held for investment and the motorcycle is for personal use. What is the amount of recognized gain?

Which of the following statements is not true with regard to like-kind exchanges?

Dean exchanges business equipment with a $120,000 adjusted basis for $40,000 cash and business equipment with a $140,000 FMV. What is the amount of gain which Dean recognizes on the exchange?

Landry exchanged land with an adjusted basis of $50,000 for another parcel of land worth $35,000 plus $10,000 of cash. Landry held the original land for investment purposes and will do the same with the new parcel. Due to the exchange, Landry will recognize

Yael exchanges an office building worth $150,000 for investment land worth $175,000. He also provided stock worth $25,000. Yael's adjusted basis in the building and stock is $180,000 and $11,000, respectively. How much gain or loss will Yael recognize on the exchange?

Rolf exchanges an office building worth $150,000 for investment land worth $175,000. He also provided stock worth $25,000. Rolf's adjusted basis in the building and stock is $130,000 and $11,000, respectively. How much gain will Rolf recognize on the exchange?

If there is a like-kind exchange of property between related parties, how long do they have to wait to dispose of the property received in order to avoid having to recognize any gain on the exchange?