1) Henry swaps his shopping center for Sarah’s office building, and the exchange
ID: 2446474 • Letter: 1
Question
1) Henry swaps his shopping center for Sarah’s office building, and the exchange qualifies as a like-kind exchange. Henry’s adjusted basis for the shopping center is $600,000 and the center is subject to a liability of $180,000. The FMV of Sarah’s office building is $770,000 and it is subject to a liability of $100,000. Each asset is transferred subject to the liability. What is Henry’s recognized gain, if any, on the transaction; and what is his basis in the office building?
2) Prince Corp. owns a warehouse with an adjusted basis of $400,000. The warehouse is destroyed by an earthquake. The insurance company paid Prince $750,000 as compensation for the loss on the warehouse. Ten months after the loss, Prince uses the insurance proceeds and other funds to acquire a new warehouse for $682,000 and equipment for its factory at a cost of $90,000. Assuming that Prince elects to defer as much of the gain on the conversion as possible, what is its recognized gain, its basis in the new warehouse, and its basis in the equipment it acquired?
3) Peter, a single taxpayer, bought a house to use as a rental property on April 1, 2007, for $300,000. He moved into the house on June 1, 2013, and used it as his personal residence until August 1, 2014, when he sold it for $500,000. Depreciation taken while the property was used as a rental property was $25,000. What was Peter’s a) realized gain on the sale of the property? b) recognized gain on the sale of the property? c) recognized gain on the sale of the property if it is not sold until August 1, 2015, for $500,000?
4) Burton wants to purchase land owned by Kelly for use in his trade or business. Kelly’s basis in the land is $150,000, and Burton has offered to pay $800,000 if she will sell within the next ten days. Kelly is interested in selling but wants to avoid gain recognition on the sale. Is there any way that Kelly could sell to Burton and still avoid gain recognition?
Explanation / Answer
4 ) Kelly could sell to Burton and still avoid gain recognition if only she chooses to reinvest the proceeds in property of “like kind”. The like kind requirement is relatively broad so that real property can be exchanged on a tax deferred basis for virtually any other type of real estate property. Any gain on the sale of the relinquished property is not taxed to the extent the sale proceeds are reinvested in one or more new replacement properties. The like- kind new property must be identified with in 45 days and purchased (the proceeds of the sale used) within 180 days
1) Henry is receiving property worth 770000+180000(his liabilty)= 950000 in exchange for property worth 600000+ 100000(Sarah's liability)=700000 So, recognised gain for Henry = 950000-700000=250000 Basis in the office building is 600000(basis of his shopping centre)Related Questions
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