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Gains and Losses and Taxpayer Exchanges

Taxpayer exchanges a business use machine with an adjusted basis of $22,000 and a fair market value of $30,000 for another business use machine with a fair market value of $28,000 and $2,000 cash. What is the
taxpayer's recognized gain?
a. $0.
b. $2,000.
c. $6,000.
d. $8,000.
e. None of the above.

Taxpayer exchanges a rental house at the beach with an adjusted basis of $225,000 and a fair market value of $200,000 for a rental house at the mountains with a fair market value of $180,000 and cash of $20,000. What
is the recognized gain or loss?
a. $0.
b. $20,000.
c. ($20,000).
d. ($25,000).
e. None of the above.

Melvin receives stock as a gift from his uncle. The adjusted basis of the stock is $14,000 and the fair market value is $20,000. Melvin trades the stock for bonds with a fair market value of $17,000 and $3,000 cash.
What is his recognized gain and the basis for the bonds?
a. $0, $11,000.
b. $0, $17,000.
c. $3,000, $14,000.
d. $6,000, $17,000.
e. None of the above.

Nancy and Tonya exchanged assets. Nancy gave Tonya her personal residence with an adjusted basis of $280,000 and a fair market value of $560,000. The house has a mortgage of $200,000 which is assumed by Tonya. Tonya gave Nancy a yacht used in her business with an adjusted basis of $250,000 and a fair market value of $360,000. What is Tonya's realized and recognized gain?
a. $310,000 realized and $310,000 recognized gain.
b. $310,00 realized and $0 recognized gain.
c. $110,000 realized and $110,000 recognized gain.
d. $110,000 realized and $0 recognized gain.
e. None of the above.

An office building with an adjusted basis of $320,000 was destroyed by fire on December 30, 2007. On January 11, 2008, the insurance company paid the owner $450,000. The fair market value of the building was
$500,000, but under the co-insurance clause, the insurance company is responsible for only 90 percent of the loss. The owner reinvested $410,000 in a new office building on February 12, 2008, that was smaller than the original office building. What is the recognized gain and the basis of the new building if § 1033 (nonrecognition of gain from an involuntary conversion) is elected?
a. $0 and $320,000.
b. $0 and $410,000.
c. $40,000 and $320,000.
d. $130,000 and 410,000.
e. None of the above.

Solution Preview

1. This is a Section 1031 Like-Kind Exchange. The three requirements for this to be a like-kind exchange are:
a. the form of the transaction is an exchange
b. both the property received and transferred are held either for productive use in a trade or business or held as investment property.
c. the property is like-kind property meaning that business property is exchange for business property and investment property is exchanged for investment property, it is generally broadly interpreted, but like anything else in the Tax Code there are specific ...

Solution Summary

This solution contains calculations of gains and losses under different given conditions.

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