Question 1: Jane has a machine with an adjusted basis of $15,000 and value of $40,000. She exchanges the machine in a qualifying like-kind exchange for a machine also valued at $40,000.
1. Does Jane have a gain or loss? What is her basis in the machine acquired?
2. Assume that Jane exchanges the machine for a new one. She is given a $16,000 trade allowance, and pays $20,000 in cash. Does she have a gain or loss? What is her basis in the machine acquired?
Question 2: Smith Couriers, Inc. exchanges 3 delivery trucks valued at $80,000 and with a basis of $50,000 for 3 different delivery trucks with a fair market value of $60,000. Because the acquired trucks had a lower fair market value, Smith receives $10,000 in cash.
1. What is the gain or loss?
2. What is the deferred gain or loss?
3. What is the basis in the 3 acquired trucks?
Question 3: Jaime's home was completely destroyed by flooding in 2016. He purchased the home in 2010 for $175,000 including $50,000 allocated for the land.
1. What is Jaime's loss (assuming he had no insurance)?
2. If Jaime's adjusted gross income is $80,000, what is his deductible loss?
3. Assume Jaime had insurance and received $160,000 in insurance proceeds to rebuild his home. What is his realized gain or loss?
4. What is the recognized gain or loss if he elects to build a smaller home and only uses $120,000 of the insurance proceeds to build the replacement home?
Question 4: Denver Corporation sells the following equipment and warehouse on June 3, 2016:
Item Cost Date Acquired Depreciation Selling Price Equipment
90,000 2012 60,000 40,000 Machine
120,000 2013 10,000 145,000 Warehouse
600,000 2014 65,000 640,000
1. What is the gain or loss for each asset? Be sure to identify the character.
2. What is the total of each type of gain or loss? How will these affect Denver Corporation's net income?