Question 1. Moss exchanges a warehouse for a building he will use as an office building. The adjusted basis of the warehouse is $600,000 and the fair market value of the office building is $350,000. In addition, Moss receives cash of $150,000. What is the recognized gain or loss and the basis of the office building?
a. $0 and $350,000.
b. $0 and $450,000.
c. ($150,000) and $300,000.
d. ($200,000) and $350,000.
e. None of the above.
Question 2: 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.
Question 3. If the taxpayer qualifies under § 1033 (nonrecognition of gain from an involuntary conversion), makes the appropriate election, and the amount reinvested in replacement property is less than the amount realized, realized gain is:
a. Recognized to the extent of the deficiency.
b. Recognized to the extent of realized gain.
c. Recognized to the extent of the amount reinvested.
d. Permanently not subject to taxation.
e. None of the above.
Question 4: Lynn, a calendar year taxpayer, owns an office building (adjusted basis of $425,000) that is condemned by the city on October 5, 2008. Lynn had received official notice of the pending condemnation on July 1, 2008. Condemnation proceeds of $685,000 are received on January 15, 2009. What are the earliest and the latest dates that Lynn can replace the office building in order to qualify for § 1033 (nonrecognition of gain from an involuntary conversion)?
a. July 1, 2008, and October 5, 2010.
b. October 5, 2008, and January 15, 2012.
c. July 1, 2008, and December 31, 2011.
d. July 1, 2008, and December 31, 2012.
e. None of the above.
Question 5. Which of the following satisfy the time period requirement for postponement of gain as a § 1033 (nonrecognition of gain from an involuntary conversion) involuntary conversion?
a. Al’s business warehouse is destroyed by a tornado on October 31, 2008. Al is a calendar year taxpayer. He receives insurance proceeds on December 5, 2008. He reinvests the proceeds in another warehouse to be used in his business on December 29, 2010.
b. Heather’s personal residence is destroyed by fire on October 31, 2008. She is a calendar year taxpayer. She receives insurance proceeds on December 5, 2008. She purchases another principal residence with the proceeds on October 31, 2010.
c. Mack’s office building is condemned by the city as part of a road construction project. The date of the condemnation is October 31, 2008. He is a calendar year taxpayer. He receives condemnation proceeds from the city on that date. He purchases another office building with the proceeds on December 5, 2011.
d. Lizzy’s business automobile is destroyed in an accident on October 31, 2008. Lizzy is a fiscal year taxpayer with the fiscal year ending on June 30th. She receives insurance proceeds on December 5, 2008. She purchases another business automobile with the proceeds on June 1, 2011.
e. All of the above.
Question 6. A factory building owned by Amber, Inc. is destroyed by a hurricane. The adjusted basis of the building was $400,000 and the appraised value was $425,000. Amber receives insurance proceeds of $390,000. A factory building is constructed during the nine-month period after the hurricane at a cost of $450,000. What is the recognized gain or loss and what is the basis of the new factory building?
a. $0 and $450,000.
b. $0 and $460,000.
c. ($10,000) and $440,000.
d. ($10,000) and $450,000.
e. None of the above.
Question 7. If the taxpayer qualifies under § 1033 (nonrecognition of gain from an involuntary conversion) and the amount reinvested in replacement property exceeds the amount realized, the basis of the replacement property is:
a. The cost of the replacement property.
b. The adjusted basis of the involuntarily converted property.
c. The cost of the replacement property minus the postponed gain.
d. The cost of the replacement property plus the excess of the reinvestment
over the amount realized from the involuntary conversion.
e. None of the above.
Question 8. Ross lives in a house he received as a gift from his father. His father had lived in the house for 12 years. The adjusted basis of the house to his father was $160,000 and the fair market value at the time of the gift was $140,000. Ross sells this residence after living in it for 18 months for $150,000 and purchases a new home for $125,000. He incurs selling expenses of $7,000. What is Ross’ recognized gain or loss and basis for the new residence?
a. ($17,000); $125,000.
b. ($17,000); $142,000.
c. $3,000; $125,000.
d. $3,000; $128,000.
e. None of the above.
Question 9. Which of the following types of transactions qualify for non-recognition treatment?
a. Exchange by a shareholder of stock in Chevron for stock in Shell.
b. Investment of the proceeds from the sale of the stock of a publicly traded company in the common stock of a specialized small business investment company (SSBIC) within 60 days of the sale.
c. Investment of proceeds from the sale of qualified small business stock in another qualified small business stock within 60 days of the sale.
d. Only b. and c.
e. a., b., and c.
Question 10. Which of the following statements is correct with respect to § 1044 (rollover of publicly traded securities gain into specialized small business investment companies)?
a. Section 1044 provides for permanent exclusion of gain.
b. To qualify under § 1044, the proceeds must be reinvested within one year of the sale.
c. The statutory ceilings on § 1044 treatment are the same for individual and corporate taxpayers.
d. Only b. and c. are correct.
e. None of the above.