R4 Property 2 (T)

Question 1

Involuntary Conversions

Answer 1

Nonrecognition treatment is given to gains realized on involuntary conversion of property (destruction, theft, condemnation) on the rationale that the taxpayer’s reinvestment of the involuntary received proceeds restores him to the position he held prior to the conversion. The amount that is not reinvested is taxable

Question 2

Involuntary Conversion of Personal Property

Answer 2

The reinvestment must occur within two years after the close of the taxable year in which any part of the gain was realized be in property similar or related in service or use

Question 3

Involuntary Conversion of Business Property

Answer 3

The reinvestment must occur within three years after the close of the taxable year in which any part of the gain was realized and be in property similar or related in service or use

Question 4

Gain on Involuntary Conversion

Answer 4

When gain is recognized because the amount received exceeds the cost of replacement, the basis of the replacement property is its cost less any gain not recognized

Question 5

Loss on Involuntary Conversion

Answer 5

Losses would be recognized

Question 6

Divorce Property Settlement

Answer 6

When a divorce settlement provides for a lump sum payment or property settlement, it is a nontaxable event. The basis of the property to the recipient spouse will be the carryover basis

Question 7

Exchange of Like-Kind Business/Investment Assets (tangible)

Answer 7

Nonrecognition treatment is accorded to a like-kind exchange of property used in the trade or business or held for investment (except inventory, stock, securities, partnership interests, and real property in different countries)

Question 8

Gain Recognized when Boot Received in Like-Kind Exchange Assets

Answer 8

If property other than property qualifying for like-kind exchange treatment is received, the transaction produces recognized gain. The recognized gain is the lower of the realized gain or boot received

Question 9

Installment Sale

Answer 9

The tax method for reporting gains (not losses) for sales made by a non-merchant in personal property and non-dealer in real estate

Question 10

Installment Sale Recognition

Answer 10

Revenue is reported over the period in which the cash payments are received

Question 11

Gross Profit

Answer 11

Sale - Cost of goods sold

Question 12

Gross Profit Percentage

Answer 12

Gross Profit/Sales Price

Question 13

Earned Revenue (taxable income)

Answer 13

Cash collections x Gross Profit percentage

Question 14

Treasury and Capital Stock Transactions (by corporation)

Answer 14

The following corporate transactions are exempt from gain (and any losses are disallowed - essentially corporations are precluded from tax benefits resulting from dealing in their own stock)
Sales of stock by corporation
Repurchase of stock by corporation
Reissue of stock