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 may still qualify as a like-kind exchange as long as the requirements for such an exchange are met, such as the use of a qualified intermediary and adherence to the 180-day exchange period.

Question 2

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

A)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 3

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

B)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 4

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

To calculate the gain or loss recognized on the exchange, we need to compare the total value of both sides of the exchange. The investment land and stock provided have a total value of $200,000 ($175,000 + $25,000). Yael's adjusted basis in the building and stock is $191,000 ($180,000 + $11,000). Therefore, Yael will recognize a gain of $9,000 ($200,000 - $191,000), which is taxable. So, the correct answer is D.

Question 5

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

To calculate the gain recognized on the exchange, we need to determine the total value received by Rolf in the exchange and then subtract his adjusted basis.

The total value received by Rolf is $175,000 (value of investment land) + $25,000 (value of stock) = $200,000.

Rolf's adjusted basis is $130,000 (building) + $11,000 (stock) = $141,000.

Therefore, the gain recognized is $200,000 - $141,000 = $59,000.

However, Rolf is using a like-kind exchange, which allows him to defer recognition of the gain, meaning he recognizes $0 gain at this time. The adjusted basis of the investment land and stock will be $141,000, which is the adjusted basis of the building and stock transferred.

Question 6

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 7

Cassie owns a Rembrandt painting she acquired on June 1,2008 as an investment.She exchanges the painting on September 5,2014,for a Picasso sculpture and marketable securities to be held as an investment.On what date does the sculpture's holding period begin?
A)June 1,2008
B)June 2,2008
C)September 5,2014
D)September 6,2014

Accepted Answer

The holding period for the Picasso sculpture begins on June 1, 2008, the date Cassie acquired the Rembrandt painting, because the exchange is considered a like-kind exchange under IRS rules, allowing the holding period to tack on from the original asset.

Question 8

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

In this exchange, Kai is trading a property with an FMV of $500,000 and a mortgage of $100,000 for a property with an FMV of $350,000 and $50,000 in cash. Kai's recognized gain is the difference between the FMV of the property given up ($500,000) and his adjusted basis in that property ($380,000), or $120,000. This gain is partially recognized because Kai received $50,000 in cash, so the recognized gain is $70,000 ($120,000 - $50,000). Therefore, the correct answer is C.

Question 9

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

C)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 10

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

C)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 11

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

To calculate the gain or loss on the exchange, we need to calculate the total amount realized by Bob, which is equal to the FMV of the land plus the cash received.

Total amount realized = FMV of land + cash received 
Total amount realized = $320,000 + $40,000 
Total amount realized = $360,000

Next, we need to calculate the total amount realized minus the adjusted basis of the warehouse. The adjusted basis of the warehouse is equal to the original basis plus any improvements minus any depreciation taken. Since we are not given any information about improvements or depreciation, we can assume that the adjusted basis is equal to the original basis.

Total amount realized - adjusted basis = gain or loss on the exchange 
$360,000 - $240,000 = $120,000 gain

Therefore, the answer is (D) $200,000.

Question 12

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

Since this is a nontaxable exchange, we use the formula:

Adjusted Basis of old asset (truck) + Cash paid - Boot received = Basis in new asset (truck)

$8,500 + $5,000 - $10,000 = $13,500

Therefore, Henri's basis in the new truck is $13,500.

Question 13

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

The first step is to calculate the realized gain, which is the fair market value of the investment land ($150,000) plus the cash received ($10,000) minus Glen's basis in the building ($120,000), minus any transaction expenses. In this case, there are no transaction expenses.

Realized gain = $150,000 + $10,000 - $120,000 = $40,000

The next step is to calculate the recognized gain, which is the lower of the realized gain or the boot received (in this case, the $10,000 cash). Therefore, the recognized gain is $10,000.

Since the building was used in business and the investment property received in exchange will be held for investment, this exchange qualifies for nonrecognition treatment under Section 1031 of the Internal Revenue Code. However, the recognized gain of $10,000 will be taxed as capital gain.

Question 14

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 15

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

When exchanging property in a like-kind exchange, any recognized gain or loss is deferred. However, if cash or something other than like-kind property is received in addition to the like-kind property, any gain recognized is taxable to the extent of the value of the non-like-kind property received. In this case, Gena received a motorcycle with a FMV of $10,000, which is not like-kind property. Therefore, $10,000 of the gain must be recognized and taxed. The recognized gain is calculated as follows:

FMV of acquired land = $80,000
Basis of relinquished land = $60,000
Realized gain = $80,000 - $60,000 = $20,000
Recognized gain = $10,000 (the FMV of the motorcycle)

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

The answer of Landry exchanged land with an adjusted basis...

Question 17

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 18

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

If there is a like-kind exchange of property between related parties, they must wait at least 2 years to dispose of the property received in order to avoid having to recognize any gain on the exchange.

Question 19

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

The answer of Pamela owns land for investment purposes. The...

Question 20

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

This statement is not true because a loss is not always recognized in such cases. If the non-like-kind property transferred has a lower value than the like-kind property received, then the difference may be treated as an adjustment to the basis of the property received rather than a recognized loss.

Quiz 24: Property Transactions: Nontaxable Exchanges

All of the following are true except:

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

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?

Cassie owns a Rembrandt painting she acquired on June 1,2008 as an investment.She exchanges the painting on September 5,2014,for a Picasso sculpture and marketable securities to be held as an investment.On what date does the sculpture's holding period begin?

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?

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?

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?

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?

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

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?

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