R3-M2

Question 1

When is a gain not taxed?

Answer 1

HIDE IT

• Homeowner’s exclusion
• Involuntary conversions
• Divorced property settlements
• Exchange of like-kind business/investment assets
• Installment sale
• Treasury and capital stock transactions

Question 2

Basis for like-kind exchanges=

Answer 2

Basis of old property 
Plus gain recognized
Less boot received
OR
FV of property received
Less: deferred gain 
Plus: deferred loss

Question 3

Qualifying property for like-kind exchange:

Answer 3

• Tangible property used in trade or business
• Real property (does not have to be same use)
• Personal property (must be same use)

Question 4

G/L realized in like kind exchange:

Answer 4

FV of new property- adjusted basis of old property(-cash paid/+cash received)
(Everything received-everything given)

Question 5

G/L recognized in like kind exchange:

Answer 5

Lesser of:
-gain realized 
OR
-boot received (NOT if paid) (net relief from liabilities)
*So no G/L when no boot
**realized losses never recognized

Question 6

G/L deferred=

Answer 6

Gain realized-Gain recognized

Question 7

Wash sale loss:

Answer 7

• loss on sale of stock is disallowed if same security is bought within 30 days before or after sale
• disallowed loss decreases basis in security
• gains are taxable

Question 8

Boot=

Answer 8

• Cash

- relief from liability

Question 9

Exclusion amt for gain on sale of personal residence:

Answer 9

$250,000 for single, $500,000 for married

Question 10

Exclusion criteria for gain on sale of personal residence:

Answer 10

• principal residence for 2/5 years
• ownership requirement
• use requirement- for BOTH spouses (250,000 deduction if only 1 spouse meets test)
• No deduction for loss
• Depreciation taken on home is taxable

Question 11

Involuntary Conversion of property (Gain)

Answer 11

• Gain deferred if insurance proceeds are reinvested in similar property
• within 2 years for personal property & 3 yrs for business

Insurance proceeds
Less: Adj basis of old warehouse
=Realized gain
Less: Gain recognized(insurance proceeds-value of new property)
=Gain NOT recognized

Cost of new property
Less: Gain not recognized
=Basis of new property

-basis is replacement cost when loss

Question 12

Involuntary Conversion of property (Loss)

Answer 12

OG building carrying amt
plus: removal and cleanup costs
=basis of conversion

Basis
less: Insurance proceeds
=Loss on conversion

Question 13

Taxable gain on insurance proceeds (When involuntary conversion is not taken)

Answer 13

Insurance proceeds for building- Adj basis

+ Insurance for lost sales

Question 14

Nondeductible losses: (WRaP)

Answer 14

-Wash sale loss(security repurchased within 30days)
-Related party transactions (Family/50% owned business)
and
-Personal loss (business losses allowed)

Question 15

Hardship provision for sale of home

Answer 15

• Hardship= change in place of employment, health or unforeseen circumstances
• Exclusion calculated by # of months of qualified ownership/ 24 months * max exclusion for filing status

Question 16

Reduced homeowners exclusion for non qualified use

Answer 16

• Non qualified: Any use of the home other than use as principal residence
• Portion of gain attributable to nonqualified use is not eligible for gain exclusion
• Depreciation is added to gain
• Surviving spouse may deduct full $500,000
• If rental use occurs after use as principal residence, entire ownership is considered qualified use