Like-Kind Exchanges - Review Questions Flashcards
Real property exchanged for personal property is not a like-kind exchange.
Choose the best answer.
True
False
True
Real property and personal property are not considered like-kind property, so they cannot be characterized as a like-kind exchange.
A sale of property and subsequent purchase of like-kind property may be treated as like-kind exchange if the two transactions are interdependent.
Choose the best answer.
True
False
True
A sale and a subsequent purchase may be treated as an exchange if the two transactions are interdependent.
Joe rents his condo but he is tired of the aggravation of being a landlord. He purchased the condo 15 years ago for $195,000 which is currently valued at $375,000. His adjusted basis is $150,000 and he has a mortgage balance of $55,000. Joe has decided to pursue a tract of land to use as a parking lot. He wants to use a like-kind exchange to minimize any tax liability on the transaction. The FMV of the land is $320,000 and the owner has agreed to assume Joe’s mortgage on the rental condo.
How much is Joe’s substituted basis in the land he will use as the parking lot?
Choose the best answer.
1) $150,000
2) $170,000
3) $205,000
4) $225,000
1) $150,000
Joe’s substituted basis is $150,000.
Amount Realized = $375,000 (FMV of qualifying property received plus debt relief which is boot)
Gain Realized = $225,000 (Amount Realized (above) less adjusted basis of property given $150,000.)
Gain Recognized = $55,000 (lessor of boot received or Gain Realized.)
Deferred Gain = $170,000 (Gain Realized but not Recognized)
Substituted Basis = $150,000 (FMV of qualifying property received less deferred gain).
How long must related parties hold on to like-kind property after an exchange in order for it to be considered a like-kind exchange?
Choose the best answer.
1) Two Months
2) Six Months
3) One Year
4) Two Years
4) Two Years
Exchanges of property between related parties are not like-kind exchanges under current law if either party disposes of the property within two years of the exchange.
Which of the following are considered to be qualifying property for a like-kind exchange?
I) A heifer (female cow) for a bull (male cow).
II) Shoes taken from inventory for a shoe rack.
III) An apartment building for raw land.
IV) Office furniture for other office furniture and fixtures.
1) All are qualifying exchanges
2) I and IV only
3) II and III only
4) III only
4) III only
Only realty for realty is allowed as a like-kind exchange.
Dave Matthews exchanged his ranch in Texas with a fair market value of $4.7 million for an apartment building in New York City worth $3.8 million. In the exchange, Dave will also have his debt of $900,000 on the Texas ranch assumed by the other party. Dave’s basis on the ranch is $3.1 million.
How much boot does Dave receive on this transaction?
1) $0
2) $900,000
3) $1,600,000
4) $3,100,000
2) $900,000
The assumption of Dave’s debt is not qualifying property and therefore it is considered boot
Dave Matthews exchanged his ranch in Texas with a fair market value of $4.7 million for an apartment building in New York City worth $3.8 million. In the exchange, Dave will also have his debt of $900,000 on the Texas ranch assumed by the other party. Dave’s basis on the ranch is $3.1 million.
How much is Dave’s realized gain?
1) $0
2) $900,000
3) $1,600,000
4) $3,100,000
3) $1,600,000
The gain realized is the amount realized less the basis of property that was relinquished. The amount realized in the FMV of qualifying property received plus boot received. Therefore, the amount realized ($3,800,000 + $900,000) less basis ($3,100.000) = $1,600,000.
Dave Matthews exchanged his ranch in Texas with a fair market value of $4.7 million for an apartment building in New York City worth $3.8 million. In the exchange, Dave will also have his debt of $900,000 on the Texas ranch assumed by the other party. Dave’s basis on the ranch is $3.1 million.
How much is Dave’s recognized gain?
1) $0
2) $900,000
3) $1,600,000
4) $3,100,000
2) $900,000
The gain recognized is the lesser of gain realized ($1,600,000) or boot received ($900,000).
Dave Matthews exchanged his ranch in Texas with a fair market value of $4.7 million for an apartment building in New York City worth $3.8 million. In the exchange, Dave will also have his debt of $900,000 on the Texas ranch assumed by the other party. Dave’s basis on the ranch is $3.1 million.
What is Dave’s substituted basis in the new property?
1) $700,000
2) $900,000
3) $1,600,000
4) $3,100,000
4) $3,100,000
The substituted basis is the FMV of the qualifying property received ($3,800,000) less the amount of the gain realized that was not recognized ($1,600,000 − $900,000 = $700,000). Therefore, the substituted basis = $3,800,000 − $700,000 = $3,100,000.
Joe Jackson, a real estate developer, would like to exchange his plot of land in Nantucket for a small apartment complex located in central Massachusetts. The apartment building is currently owned by Sam Tower. The fair market value of the building is $1.8 million and Sam’s basis is currently $1.3 million. The property also has a mortgage balance of $600,000. Joe’s land has a FMV of $1.2 million and is debt free. Joe’s basis in the land is $900,000. Joe and Sam have agreed to swap properties. Joe will assume Sam’s $600,000 mortgage on the apartment complex.
How much is Joe’s gain realized on the Nantucket land?
1) $0
2) $300,000
3) $900,000
4) $1,200,000
2) $300,000
The gain realized is the amount realized less the basis of property that was relinquished. The amount realized is the FMV of qualifying property received plus net boot received. Therefore, the amount realized ($1,800,000 − $600,000 [Debt assumption]) less basis ($900,000) = $300,000.
Joe Jackson, a real estate developer, would like to exchange his plot of land in Nantucket for a small apartment complex located in central Massachusetts. The apartment building is currently owned by Sam Tower. The fair market value of the building is $1.8 million and Sam’s basis is currently $1.3 million. The property also has a mortgage balance of $600,000. Joe’s land has a FMV of $1.2 million and is debt free. Joe’s basis in the land is $900,000. Joe and Sam have agreed to swap properties. Joe will assume Sam’s $600,000 mortgage on the apartment complex.
How much is Joe’s gain recognized on the Nantucket land?
1) $0
2) $300,000
3) $900,000
4) $1,200,000
1) $0
The gain recognized is the lesser of gain realized ($300,000) or boot received ($0). Boot was given (absorbing debt) but not received.
Joe Jackson, a real estate developer, would like to exchange his plot of land in Nantucket for a small apartment complex located in central Massachusetts. The apartment building is currently owned by Sam Tower. The fair market value of the building is $1.8 million and Sam’s basis is currently $1.3 million. The property also has a mortgage balance of $600,000. Joe’s land has a FMV of $1.2 million and is debt free. Joe’s basis in the land is $900,000. Joe and Sam have agreed to swap properties. Joe will assume Sam’s $600,000 mortgage on the apartment complex.
How much is Joe’s substituted basis in the apartment building?
1) $600,000
2) $900,000
3) $1,800,000
4) $1,500,000
4) $1,500,000
The substituted basis is the FMV of the qualifying property received ($1,800,000) less the amount of the gain realized that was not recognized (($1,800,000 − $600,000) − $900,000 = $300,000). Therefore, the substituted basis = $1,800,000 − $300,000 = $1,500,000.
Joe Jackson, a real estate developer, would like to exchange his plot of land in Nantucket for a small apartment complex located in central Massachusetts. The apartment building is currently owned by Sam Tower. The fair market value of the building is $1.8 million and Sam’s basis is currently $1.3 million. The property also has a mortgage balance of $600,000. Joe’s land has a FMV of $1.2 million and is debt free. Joe’s basis in the land is $900,000. Joe and Sam have agreed to swap properties. Joe will assume Sam’s $600,000 mortgage on the apartment complex.
How much is Sam’s gain realized on the apartment building?
1) $500,000
2) $0
3) $600,000
4) $1,800,000
1) $500,000
The gain realized is the amount realized less the basis of property that was relinquished. The amount realized is the FMV of qualifying property received plus net boot received. Therefore, the amount realized ($1,200,000 + $600,000 [Debt relieved is boot]) less basis ($1,300,000) = $500,000.
Joe Jackson, a real estate developer, would like to exchange his plot of land in Nantucket for a small apartment complex located in central Massachusetts. The apartment building is currently owned by Sam Tower. The fair market value of the building is $1.8 million and Sam’s basis is currently $1.3 million. The property also has a mortgage balance of $600,000. Joe’s land has a FMV of $1.2 million and is debt free. Joe’s basis in the land is $900,000. Joe and Sam have agreed to swap properties. Joe will assume Sam’s $600,000 mortgage on the apartment complex.
How much is Sam’s gain recognized on the apartment building?
1) $500,000
2) $0
3) $600,000
4) $1,300,000
1) $500,000
The gain recognized is the lesser of gain realized ($500,000) or boot received ($600,0000). Boot was received (debt assumption).
Joe Jackson, a real estate developer, would like to exchange his plot of land in Nantucket for a small apartment complex located in central Massachusetts. The apartment building is currently owned by Sam Tower. The fair market value of the building is $1.8 million and Sam’s basis is currently $1.3 million. The property also has a mortgage balance of $600,000. Joe’s land has a FMV of $1.2 million and is debt free. Joe’s basis in the land is $900,000. Joe and Sam have agreed to swap properties. Joe will assume Sam’s $600,000 mortgage on the apartment complex.
How much is Sam’s substituted basis in the Nantucket land?
1) $900,000
2) $1,200,000
3) $1,300,000
4) $1,800,000
2) $1,200,000
The substituted basis is the FMV of the qualifying property received ($1,200,000) less the amount of the gain realized that was not recognized (($500,000 − $500,000) = $0). Therefore, the substituted basis = $1,200,000 − $0 = $1,200,000.
