Problem 1: 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.
Problem 2: 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.
Problem 3: 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.
Problem 4: 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.
Problem 5: 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.