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Exchanges and Conversion Issues

Question 1. A building located in Virginia (used in business) exchanged for a building located in France (used in business) cannot qualify for like-kind exchange treatment.
a) True
b) False

Question 2. If a loss occurs on an involuntary conversion, the holding period of the replacement property does not include the holding period of the converted property.
True
False

Question 3. For § 121 (exclusion of gain on sale of principal residence) to apply, the old residence generally must be replaced by another residence within a period beginning two years before and ending two years after the sale of the old residence.
True
False

Question 4. A taxpayer who sells his or her principal residence at a realized loss can elect to recognize the loss even if a qualified residence is acquired during the statutory time period.
True
False

Question 5. Under § 121 (exclusion of gain on sale of principal residence), a married couple can exclude a maximum of $500,000 on a joint return even if one spouse had no ownership interest in the residence.
True
False

Question 6. Brett owns investment land located in Tucson, Arizona. He exchanges it for other investment land. In which of the following locations may the other investment land be located and enable Brett to qualify for § 1031 like-kind exchange treatment?
a. Mexico City, Mexico.
b. Toronto, Canada.
c. Paris, France.
d. Only a. and b.
e. None of the above.

Question 7. Lily exchanges a building she uses in her rental business for a building owned by Kendall, her brother, which she will use in her rental business. The adjusted basis of Lily's building is $120,000 and the fair market value is $170,000. Which of the following statements is correct?
a. Lily's recognized gain is $50,000 and her basis for the building received is
$120,000.
b. Lily's recognized gain is $50,000 and her basis for the building received is
$170,000.
c. Lily's recognized gain is $0 and her basis for the building received is
$120,000.
d. Lily's recognized gain is $0 and her basis for the building received is
$170,000.
e. None of the above is correct.

Question 8. Latisha owns a warehouse with an adjusted basis of $112,000. She exchanges
it for a strip mall building worth $150,000. Which of the following
statements is correct?
a. If the warehouse was used in Latisha's business to store inventory and the
strip mall building is to be rented to tenants, her recognized gain is $38,000
and her basis for the strip mall building is $150,000.
b. If the warehouse was used in Latisha's business to store inventory and the
strip mall building is to be used as a retail outlet for her business, her
recognized gain is $0 and her basis for the strip mall building is $112,000.
c. If the warehouse is used by Latisha to store personal use items such as
excess furniture and the strip mall building is to be rented to tenants, her
recognized gain is $38,000 and her basis for the strip mall building is
$150,000.
d. Only b. and c. are correct.
e. a., b., and c. are correct.

Question 9. Maud exchanges a rental house at the beach with an adjusted basis of $240,000 and a fair market value of $220,000 for a rental house at the mountains with a fair market value of $190,000 and cash of $30,000. What is the recognized gain or loss?
a. $0.
b. $20,000.
c. $30,000.
d. ($20,000).
e. None of the above.

Question 10. 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?
Question 10 answers
a. $0, $11,000.
b. $0, $17,000.
c. $3,000, $14,000.
d. $6,000, $17,000.
e. None of the above.

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Solution Summary

This solution in question and answer format covers the topics of exchanges, conversions, and the related income tax consequences.

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