Question 1

Define an involuntary conversion.

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Question 2

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?

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Question 3

Edith's manufacturing plant is destroyed by fire on the afternoon of November 3, 2017. The adjusted basis is $800,000. The insurance company offers a settlement of $700,000. After protracted negotiations, Edith receives $825,000 on June 9, 2018. Edith is a fiscal year taxpayer whose tax year ends on June 30th. What is the latest date that Edith can invest the proceeds in qualifying replacement property and elect to defer the gain under § 1033?

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Question 4

Distinguish between a direct involuntary conversion and an indirect involuntary conversion.

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Question 5

How does the replacement time period differ for the condemnation of real property used in a trade or business or held for investment when compared with that for other involuntary conversions?

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Question 6

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?

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Question 7

Byron, who lived in New Hampshire, acquired a personal residence ten years ago when he was 52 years old. During this period he has occupied the residence for only eight months (out of 12) each year due to winter vacations in Florida. Is Byron eligible for exclusion of gain under § 121?

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Question 8

What effect do the assumption of liabilities have on a § 1031 like-kind exchange?

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Question 9

To be eligible to elect postponement of gain treatment for an involuntary conversion, what are the three tests for qualifying replacement property?

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Question 10

Melissa, age 58, marries Arnold, age 50, on June 1, 2017. Melissa decides to sell her principal residence on August 1, 2017, 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 2015 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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Question 11

What types of exchanges of insurance contracts are eligible for nonrecognition treatment under § 1035?

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Question 12

Discuss the treatment of realized gains from involuntary conversions.

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Question 13

Ramon sells land with an adjusted basis of $120,000 and a fair market value of $175,000 to Pauline, his wife, for $175,000. Discuss how the tax consequences would differ if Ramon and Pauline had never been married.

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Question 14

Discuss the treatment of losses from involuntary conversions.

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Question 15

Louis owns a condominium in New Orleans which has been his principal residence for 12 years. He wants to be near Lake Ponchartrain since he enjoys water activities. Therefore, he sells the condominium. His original intent was to purchase a house in New Orleans near the lake. However, the cost of such properties far exceeded his sales proceeds. He was able to purchase a house on the lake in Covington, which is located across the causeway. He invested all of his sales proceeds in the Covington house. After two months of commuting over an hour to and from work each day, he decides to rent an efficiency apartment in New Orleans near his office. He spends the weekends and vacations at his home in Covington.
a.Does Louis qualify for exclusion of gain under § 121?
b.Does his Covington house qualify as his principal residence?

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Question 16

Edward, age 52, leased a house for one year in Memphis with an option to buy as his personal residence. At the end of the lease, he purchased the house. He lived there for an additional 26 months before his employer transferred him to Tucson. Expecting to be in Tucson for 18 to 24 months, he rented the Memphis house for 18 months with an option to extend on a month to month basis for an additional 6 months. At the end of the 18-month period, Edward's employer offered him a permanent position in Tucson as branch manager. The tenant who had been occupying Edward's house in Memphis purchased it at the end of the 24-month extended lease period. Is Edward eligible to elect exclusion treatment under § 121?

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Question 17

Under what circumstances may a partial § 121 exclusion be available even though the taxpayer has used the § 121 exclusion within the two-year period preceding the sale of the current residence?

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Question 18

Jake exchanges an airplane used in his business for a smaller airplane to be used in his business. His adjusted basis for the airplane is $325,000 and the fair market value is $310,000. The fair market value of the smaller airplane is $300,000. In addition, Jake receives cash of $10,000. Calculate Jake's realized and recognized gain or loss and his adjusted basis for the assets received.

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Quiz 15: Property Transactions: Nontaxable Exchanges