Like-Kind Exchanges + Propery gains / losses

Paul and Heather are getting divorced. As part of the divorce settlement, Heather receives the vacation home worth $3,000,000. The couple originally purchased the vacation home five years ago for $1,000,000. What is heather's basis?

1 million. paul no longer has an interest in the property.

How would the realization requirement influence an investor's decision to purchase stocks expected to appreciate in value but not paying dividends versus stocks paying dividends but not expected to appreciate in value? 1. Dividends are recognized income in the year they are received. 2. Appreciation in value is taxed in the year in which it occurs. 3. Stock dividends are not recognized until the stock is sold. 4. Realization is an economic concept and recognition is a tax concept.

1, 3, and 4. - Dividends paid in cash are recognized as income in the year the dividends were paid. - A dividend paid in shares of stock is not taxed upon receipt and will appreciate in value until the stock is sold. - Realization is an economic concept, recognition is a tax concept.

Paul and Heather are getting divorced. As part of the divorce settlement, Heather receives the vacation home worth $3,000,000. The couple originally purchased the vacation home five years ago for $1,000,000. if heather sells the house 2 months later for 3.2M - what is the tax impact?

2.2m capital gain.

Peyton has a piece of equipment used in his business. He exchanges it for a like-kind asset owned by Eli. (Peyton and Eli are unrelated). The basis of Peyton's asset is $40,000 and he gives Eli $20,000 cash plus the asset in exchange for Eli's asset, which is worth $36,000. Eli's basis in his original asset is $10,000. What is Peyton's recognized gain or loss?

24000 loss While losses are not recognized in like kind exchanges; this is not a like kind exchange. Only real property is eligible for like kind treatment (section 1031) under the new law. As a result, Peyton has a realized/recognized loss as follows: Value received (new property) $36,000 - Basis $40,000 - cash $20,000 = $24,000 loss. His new basis is the value he "paid" $36,000.

Which of the following is not a requirement for the deferral of gain in a nonsimultaneous exchange under Section 1031? 1. The replacement property must be like-kind property with respect to the original property. 2. The proceeds from the sale of the original property must be held by an escrow agent. 3. A replacement property must be identified within 90 days of the sale of the original property. 4. The closing on the replacement property must take place by the earlier of 180 days from the sale of the original property or the due date (including extensions) of the tax return for the year the original property was sold.

3 is the only incorrect answer. 45 days to identify another property.

Which of the following is true of the substitute basis of a qualifying asset in a like-kind exchange? A.The substitute basis is the asset's fair market value increased by the gain realized but not recognized. B.The substitute basis is the asset's basis reduced by the gain realized but not recognized. C.The substitute basis is the asset's basis increased by the gain realized but not recognized. D.The substitute basis is the asset's fair market value reduced by the gain realized but not recognized

B. The substitute basis is the asset's fair market value reduced by the gain realized but not recognized.

Peyton has a warehouse used in his business. He exchanges it for a storage building owned by Eli. (Peyton and Eli are unrelated). The basis of Peyton's asset is $40,000 and he gives Eli $20,000 cash plus the asset in exchange for Eli's asset, which is worth $36,000. Eli's basis in his original asset is $10,000. What is Eli's new basis?

Eli's new basis stays the same, but shows 20k of gain from the boot., reducing his potential gain by 20k. 10,000.

bargain sales? deductibility?

For tax purposes, bargain sale transactions (selling to an unrelated party at a price well below FMV) cannot generate capital losses.

Alice owns land "A" with an adjusted basis of $250,000, subject to a mortgage of $50,000. On July 1st, Alice exchanges land "A" and its mortgage for $300,000 in cash, a promissory note for $300,000, and property "B" that has a fair market value of $75,000 with Betty. What is the amount realized by Alice?

The realized amount not only includes the monies and fair market value of property "B" received (and any indebtedness the buyer has to the seller), but also any liabilities for the seller is relieved. In this case, the seller received $675,000 in cash, property, and notes (buyers indebtedness to the seller) as well as relief from $50,000 in mortgage. The total amount realized is $725,000. The question is tricky because of the vocabulary. The "amount realized" is the total that she receives. Alice is getting: Relief from mortgage $ 50,000 + Cash $300,000 + note $300,000 + property $ 75,000 = total received $725,000 this is her "amount realized"

On December 31 of last year, Uli purchased 100 shares of Runway, Inc. (a publicly held company) for $5,000. On March 1 of this year, Runway, Inc. declared that it was bankrupt, that it will wrap up operations, and that all of its assets will be used to satisfy secured creditor claims so there will be no residual equity left for the stockholders. Describe the tax treatment of this transaction?

Uli may deduct 3000 against ordinary income and carry forward 2000.

Ivan invests in land and Grace invests in taxable bonds. The land appreciates by $5,000 each year, and the bonds earn interest of $5,000 each year. After holding the land and bonds for five years, Ivan and Grace sell them. There is a $25,000 realized gain on the sale of the land and no realized gain or loss on the sale of the bonds. Which of the following best describes the tax consequences to Ivan and Grace for the five years? 1. Ivan will recognize a capital gain of $25,000 since appreciation (or the gain) on sale is not taxed until the asset is sold. 2. Grace will have recognized the interest received over the years. 3. Ivan will not have recognized gain over appreciation of unsold property. 4. Grace will not recognize a gain on sale since the bonds haven't appreciated.

all.

Frank is considering selling a parcel of raw land located in South Dakota that he owns. If Frank sells the land, he would like to invest the proceeds in another piece of real property and would like to qualify for like-kind exchange treatment. Which of the following assets would not qualify as like-kind property for the sale of raw land? - Raw land located in Canada. - An industrial warehouse located in California.

canada. U.S. real estate and foreign real estate are not like-kind assets for income tax purposes.

In an involuntary conversion, the ______ , not the payment date, determines the date of recognition. what does this mean?

date of realization involuntary conversion - you are forced to give up or lose property, such as due to theft, destruction, condemnation by the government, etc. date of realization - the point in time at which you experience the event that results in the involuntary conversion on your tax return.

when you are gifted stock with double basis rules from somebody that held the stock for over a year, how are the gains/losses structured?

lower basis is donee's basis. that basis is subject to short term or long term gains based on date of gift for a loss. higher basis is donor's basis, which is subject to their timeline.

Your client Bebe Rebozo is contemplating the exchange of two parcels of investment land for two similar parcels in two separate transactions. Given the following details of the proposed transaction, compute the amount of recognized gain and loss (if any) on both parcels if your client completes the exchanges: - Parcel A: Ten acres of land acquired 15 years ago with a current basis of $50,000. In exchange your client will receive eight acres of land (FMV = $80,000) and $20,000 in cash. - Parcel B: Twenty acres of land acquired two years ago with a current basis of $100,000. In exchange, your client will receive twelve acres of land (FMV = $75,000) and $10,000 in cash.

parcel A - 20k gain parcel B - no gain. This question pertains to like kind exchanges where boot is involved. The rule is that any realized gain will be recognized to the extent of the lesser of realized gain or boot received. In this case, there was a realized gain of $50,000 ($50,000 basis for $100,000 market value). The boot of $20,000 is recognized as gain since it is the lesser of boot or realized gain. Parcel B will have no gain in that there is no realized gain between the basis of the property given up and the fair market value of the property received. There is a realization but it is not recognized. Losses in like kind exchanges are not recognized. Note: A gain or loss is realized when an asset is disposed of, or sold. Recognition is what a like kind exchange is trying to avoid (payment of tax).

Amount Realized

the total amount received from a sale transaction.

are gains on personal use assets taxable? are losses deductible?

yes no

is a capital loss in excess of 3000 a deductible loss?

yes, just in future years though.

do you have to take short term losses ahead of long-term losses?

yes.