Tax 4001: Homework Set 5 Solution

Tax 4001
Spring 2011
Homework Set #5 Solution
PAGE 1

# 1 a) Amount Realized $37,500 Basis (45,000) Real Loss (7,500)

Recognized Loss $0 because personal use asset

c. The real loss is $0.
b) Same as (a). Like-kind exchange rules do not apply to personal-use assets

c)Her recognized loss is $0. Since the form of the transaction is a theft, the recognized loss is the lesser of the adjusted basis or the fair market value of the asset, reduced by the insurance proceeds that she received (see Chapter 6). Therefore, the opportunity for the theft loss deduction on personal use property is not present in this case because the insurance proceeds received of $37,500 equal the fair market value of $37,500.

#2
a.

amt realized $65,000
"loss" basis 76,000 Recognized Loss (11,000)

b. $0. The proceeds of $68,000 are between the gain basis of $80,000 and the loss basis of $60,000. Therefore, neither gain nor loss is recognized.

#3 a. $225,000

b. $200,000 (note: only the building can be depreciated)

c. $225,000 Basis for the gain is adjusted basis

d. She would be better off to sell the house and buy another one. Because the house is her personal residence, she could exclude the gain on sale. Then she would be able to depreciate the new house at a higher basis

#4
a.
Amt. Realized $265,000 Adj Basis 175,000 Real Gain 90,000 b.
Recoginzed Gain is $65,000 which is the less of realized gain or boot received. c. Adjusted basis of Land | $175,000 | Gain Recognized | 65,000 | Boot | (65,000) | Adj Basis of Building | 175,000 |

.

Tax 4001
Spring 2011
Homework Set #5 Solution
PAGE 2

.
#5
Amt. Realized $1,235,000 [125000 + 900000 + 210000] Less: Basis of Apt 850,000 Real Gain 385,000

b.
Recog Gain $335,000 Cash plus mortgage Postponed Gain $50,000

c. | | Basis of Apt Bldg | $850,000 | + gain recognized | 335,000 | Less: Boot received | (335,000) | Basis of Office Bldg | $850,000 |

#6 | | Cost | $200,000 | Legal Fees | $21,500 | Streets and Sewers | $700,000 | Basis | $921,500 |

#7 Basis b4 casualty $10,000 Insurance proceeds 13,500 Casualty Gain 3,500 Basis after insurance -

#8
FIFO method used to determine which shares were sold, therefore Tommy
Is treated as having sold 100 of the shares he purchased on 10/16/06

Per Share Basis = $7500/125 shares = $ X Number of Shares Sold (100) = $

60
6,000

per share
Basis of Shares Sold

Sales Procceds | 18,000 | Less: Basis | (6,000) | LTCG | $ 12,000 |

Tax 4001
Spring 2011
Homework Set #5 Solution
PAGE3

30. | a. | Realized gain- $9,000 [($12,000 fair market value of new asset+ $4,000 boot received)-$7,000 adjusted basis of old asset]. Recognized gain= $4,000. | | | Postponed gain= $5,000. | | | New basis= $7,000 ($12,000 fair market value of new asset- $5,000 postponed gain). | | b. | Realized loss = $1,000. | | | Recognized loss= $-0-. | | | Postponed loss= $1,000.
| | | New basis= $16,000 ($15,000 fair market value of new asset+ $1,000 postponed loss). | | c. | Realized loss = $1,500. Recognized loss= $-0-. | | | Postponed loss= $1,500. | | | New basis= $9,500 ($8,000 fair market value of new asset+ $1,500 postponed loss). | | d. | Realized gain= $10,000. Recognized gain = $-0-. | | | Postponed gain= $10,000. | | | New basis = $22,000 ($32,000 fair market value of new asset - $10,000 postponed | | | gain). | | e. | Realized gain = $2,000. | | | Recognized gain= $1,000. | | | Postponed gain= $1,000. | | | New basis= $10,000 ($11,000 fair market value of new asset- $1,000 postponed gain). | | f. | Realized loss = $2,000. Recognized loss= $-0-. | | | Postponed loss= $2,000. | | | New basis= $10,000 ($8,000 fair market value of new asset+ $2,000 postponed loss). |

Tax 4001
Spring 2011
Homework Set #5 Solution
PAGE4

32.
a. Since the owner is an owner-investor, the taxpayer use test applies. Replacing the warehouse that is rented to various tenants with a shopping mall that is rented to various tenants in a different location qualifies as replacement property.

Amount realized Adjusted basis Realized gain

$ 700,000 (470,000)
$ 230,000

Recognized gain $ -0-

The basis for the replacement property is:

Cost
Postponed gain
Basis

$ 700,000 (230,000)
$ 470000

b. Since the owner is an owner-user, the functional use test applies. Replacing the warehouse used in his business with another warehouse in a different state which is to be used in his business qualifies as replacement property under the functional use test.

Amount realized Adjusted basis Realized gain

Recognized gain

$ 400,000 (300,000)
$ 100,000

$ -0-

The basis for the replacement property is:

Cost
Postponed gain
Basis

$ 400,000 (100,000)
$ 300,000

c. Since Swallow was an owner-user of the building, the functional use test applies.
Thus, Swallow's use of the replacement property and of the involuntarily
converted property must be the same. Since Swallow's use of the four-unit apartment building is different from the use of the building in its retail business, the apartment building does not qualify as replacement property.

Amount realized Adjusted basis Realized gain

Recognized gain

$ 300,000 (250,000) $ 50,000

$ 50,000

The basis for the apartment building is its cost of $300,000.

d. Not qualified replacement property because they are owner-users so functional-use test applies.
Thus they must recognize their realized gain of $30,000 and their basis in the duplex is $200,000.