Nonrecognition Transactions Chapter 13
An investor owns a property free and clear. It is valued at $420000 with a book value of $320000 he exchanges the property for another property, owned free and clear, valued at $435000. He receives no boot. The book value of his new property would be $335000
False - Book Value is the same thing as initial basis. If no boot is exchange, the old property book value is transferred to the new property, So in this case, the book value of the new property would be $320000
To qualify for a tax-free exchange, the property must be unimproved investment property, income property, personal use property, property used in a trade or business.
False - Personal use property, such as principal residence or a second home, is not eligible for a tax free exchange
Jones sold his property for $150000, which amounted to a gross profit of $24000. His gross profit ratio is 12%
False 24000/150000=.16=16%
If a developer exchanges one of the new homes in his subdivision for a similar home in another part of town, he is eligible for the tax advantages of a tax free (tax-deferred) exchange
False A developer is a dealer and the homes in his subdivision are considered inventory. Dealer held property is not eligible for a tax free exchange
In an installment sale, the gross profit ratio applies to all principal and interest payments received in a given calendar year.
False- The gross ratio applies only to principal payments received. Interest payments received are taxable as ordinary income in the year they are received.
In a tax free exchange, anything other than like kind property that the taxpayer receives is called boot, and it is recognized in the year of the exchange.
True
In a tax-free exchange of two rental properties, one taxpayer traded away a property with a higher mortgage balance than the one he received. This advantage is called debt relief, which is boot and taxable in the year of the exchange.
True
In installment sales, the gross profit is used in calculating the gain to be recognized in any given year.
True
Installment sale reporting is permitted for all classes of property, except for dealer property (which only under special conditions)
True
If an owner receives money because a property has been destroyed or condemned, it is known as involuntary conversion.
true
