Chapter 9 – Sales & Exchanges Of Property

Question 1

realized gain or loss formula

Answer 1

(amount realized) - (adjustable base)

Question 2

Cash plus the fair market value of another asset given in exchange for an asset transferred.

Answer 2

amount realized

Question 3

The value of your property after any adjustments (such as depreciation)

Answer 3

adjusted basis

Question 4

The amount of gain or loss that is reported on your income tax return.

Answer 4

recognition

Question 5

This is when a taxpayer is able to adequately identify which stock shares are sold.

Answer 5

specific identification

Question 6

This method of determining adjusted basis is used if stock shares cannot be specifically identified.

Answer 6

FIFO shares

Question 7

There are three types of methods that we used to determine the basis of stocks and mutual funds. Which of the 3 methods are used for stocks sold and which of the 3 methods are used for mutual funds?

Answer 7

stocks (specific identification and FIFO shares)

mutual funds (stock identification, FIFO shares, and average cost basis)

Question 8

The person receiving a gift has the same basis as the __________ basis.

Answer 8

donor’s

Question 9

If someone gives you a gift and now that gift is losing money, the lost property can use the _______________ rule.

Answer 9

double basis

Now your basis could be the higher amount or the lower amount. If it’s between the numbers you don’t recognize any loss or gain.

Question 10

The basis of inherited property is the…

Answer 10

fair market value on the date of the person’s death.

Question 11

Do you get a step up in basis in IRAs or annuities?

Answer 11

No

Question 12

If property is given as compensation for services, the basis of that property will equal…

Answer 12

the fair market value at the time it was received.

Include in your gross income

Question 13

If property has a mortgage, the basis of the property will be the entire cost of the actual property including the amount subject to

Answer 13

the mortgage.

Question 14

If cash is received by a business partner involved in a partnership, will this change the basis of the partnership?

Answer 14

Yes

Question 15

If a like kind exchange occurs, when is the gain recognized?

Answer 15

When you file your taxes and immediately.

Question 16

Name 4 items that are not considered “like-kind property”.

Answer 16

Personal Assets (cars, houses)
Inventory items
Securities
Real property exchange for personal property (building in exchange for a machine)

Question 17

If a I receive “boot” doing an exchange, then I have to recognize any gain based on the…

Answer 17

boot received.

Question 18

What are 3 items that are considered boot?

Answer 18

Cash
Non-like-kind property received in the exchange
Any liability assumed by the other party

Question 19

What’s the difference between recognize gain and realize gain?

Answer 19

Recognized gain is what you pay taxes on. Realized gain is the economic amount you received.

Question 20

For “like-kind exchanges” your recognized gain is going to be the lesser of the ___________ or the ______ receive.

Answer 20

realize gain

Boot

Question 21

If there’s realized gain from an exchange of property and I recognize the gain including any boot receive. How would a loss be recognized?

Answer 21

There are NO losses when dealing with “like-kind exchanges”.

Question 22

______________allows a taxpayer to replace a contract that is no longer in his/her interest without negative income tax ramifications.

Answer 22

Section 1035

Question 23

A gain or loss ______ be recognized upon a qualifying exchange of a life insurance policy, endowment contract, or an annuity.

Answer 23

will

Question 24

What are the 3 non-taxable exchanges when it comes to insurance contracts?

Answer 24

life insurance contract = (life insurance + endowment contract +annuity)
endowment contract = (life insurance + endowment contract + annuity)
annuity = annuity

Question 25

When you exchange an _________ contract for any other contract it will be taxed.

Answer 25

annuity

Question 26

Multiple life insurance policies can be exchange for one…

Answer 26

life insurance policy.

Question 27

Multiple life insurance policies can be exchange for another policy if the insured is the…

Answer 27

same on both contracts and a US citizen.

Question 28

A married couple cannot combine 2 policies into…

Answer 28

one joint policy on their lives.

Question 29

If I cash out a life insurance policy, then reinvest that cash at a later time into a new policy what will happen?

Answer 29

It will not qualify under Section 1035

Question 30

A taxpayer of any age can exclude from income up to $____________ of gain ($_______________ for joint filers) for the sale of a home without having to buy a replacement home. 🏡

Answer 30

$250,000

$500,000

Question 31

In order to not be taxed on the gain received from the sale of your home, the house has to owned/used by the taxpayer as a principal residence for at least…

Answer 31

two of the last five years before the sale.

Question 32

Exclusion for the “sale of a residents” can only be used once every…

Answer 32

two years.

Question 33

Under what circumstances will the “sale of residence” exclusion not be available if you move before the two-year mark?

Answer 33

1. Job change
2. Health
3. Other unforeseen circumstances

Question 34

When a taxpayer sells a security for a loss and within 30 days before or after the date of the sale acquires a very similar security.

Answer 34

wash sale

Question 35

When you have a wash sale, the loss that you experienced after selling security will be added to the…

Answer 35

new security that you bought.

Question 36

The “wash sale” rule only applies to…

Answer 36

losses.

Question 37

Last year, a single mother gifted property with a basis of $900,000 and a fair market value of $1,200,000 to her son. If the son later sold the property for $1,300,000, what would be the sauce taxable gain?

Answer 37

Gifts have a carryover basis.

$1,300,000 - $900,000 = $400,000

Question 38

The basis rule for inheritance is generally more favorable than the basis rule for a gift, unless…

Answer 38

the property’s value has decrease.