11
Property 723
Chapter Transactions: Nonrecognition of
Gains and Losses
TRUE-FALSE QUESTIONSCHAPTER 11
*Some of the true-false questions have been adapted from the IRS Examinations.
1. Alfred Ahern sold a truck with an adjusted basis of $6,000 for $1,500 to a salvage yard. He purchased a
replacement truck two months later for $24,000. Alfreds basis in the new truck is $28,500.
2. Ed Evans traded in a large lathe used in his business with an adjusted basis of $7,000 for a smaller lathe
valued at $8,000. In addition to the smaller lathe, Ed received $2,000 cash. Eds recognized gain is $3,000.
3. Leonard Longstreet owns a rental building with an adjusted basis of $300,000 and a fair market value of
$280,000. In July 2011, the state condemned the property for a highway project and paid him $280,000,
which he immediately reinvested in a similar rental property. Leonard may recognize a loss.
4. Melvin Monroe reads in the newspaper that the state highway department has decided to take his property
for public use. He veries the news by phoning an ofcial of the highway department who is involved in the
project acquiring this property. This is a threat of condemnation.
5. Ray Ramblers ofce building with a basis of $75,000 was condemned by the county which paid him
$120,000 as compensation. He purchased a new new ofce one year later for $105,000. Ray is entitled to
postpone all of the $45,000 realized gain.
6. The exclusion on the sale of a personal residence is $500,000 for taxpayers ling jointly and as single
individuals.
7. A taxpayer is required to own and occupy the residence three out of the last ve years in order to qualify for
the exclusion.
8. Unimproved land can be exchanged for an apartment house and qualify as a like-kind exchange.
9. The general like-kind exchange rule is that there is nonrecognition of loss but recognition of gain.
10. In a like-kind exchange, gains and losses are never recognized.
11. If boot is received in a like-kind exchange, realized losses are not recognized but realized gains may be
recognized.
12. A liability assumed by a transferee is considered boot received by the transferor.
13. The requirements for replacement property under a casualty and theft are less restrictive than for like-kind
exchanges.
14. Nonrecognition of gain is mandatory regardless of whether an involuntary conversion is for money or
property.
15. Losses from involuntary conversions are never recognized.
16. Loss from the sale of a personal residence is never recognized but gain from the sale of a personal residence
may be recognized.
17.
18.
19.
20.
The exlusion may be taken on a sale of a residence once each year, assuming a sale takes place that often.
Any excluded gain on the sale of the residence reduces the basis of the new residence.
Taxpayers may elect out of the exclusion for sale of residence.
If a single taxpayer eligible for the exclusion for sale of residence marries someone who has used the exclusion
within two years before the marriage, that individual may still use the $250,000 exclusion.
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21. If a gain realized on the sale of a personal residence is above the allowed exclusion, the excess may be
deferred through a reduction in the basis of the new residence.
22. A realized loss on the sale of a residence may be either deducted or added on to the basis of the new
residence.
23. If an exchange of property involves the assumption of a liability by the transferee it is treated like boot
received by the transferee.
24. A three-party exchange is used to remedy a situation in which one party wants a nontaxable exchange while
the other party wishes to sell property.
25. A total residence can qualify as a principal residence if it is used partly for business purposes.
26. A widowed taxpayers period of ownership of a residence includes the period the deceased spouse owned
and used the property before death.
27. The time during which the taxpayers spouse or former spouse owned the residence cannot be added to the
taxpayers period of ownership.
28. If a taxpayer becomes physically or mentally incapable of self-care, the taxpayer must have owned and used
the residence as a principal residence for a period of at least 18 months during the ve years preceding the
sale in order to consider the residence as being used while in a nursing home.
29. Taxpayers that realize a loss on a like-kind exchange will immediately derive tax benets associated with
deducting the loss.
30. The exchange of land for an ofce building qualies as like kind property, but the exchange of a vacant lot
for a warehouse would not.
31. A like-kind exchange would occur when a business trades in a truck as a part of the consideration in the
purchase of a new truck.
32. It is possible for both parties to receive boot in a like-kind exchange if one party receives cash and the other
party is treated as having received boot by having been released from more debt than it assumed on the
exchange.
33. If the taxpayers investment in an apartment building is condemned by the local government, the taxpayer
can replace it with any other rental property; it does not have to be another apartment building.
34. The exchange of a personal residence for land qualies as a nontaxable exchange.
35. Jim Jones went to court to stop a state commission from acquiring his property to widen a state highway. The
court ruled for the state highway commission, whereupon the commission paid Jim the amount xed by the
court. Jims property was involuntarily converted.
36. Rose Rambler, a calendar-year taxpayer, owned a rental building that was condemned by the state on April
30, 2011. The state paid Rose the fair market value of the property on Jun 29, 2011. Rose must replace her
property by December 31, 2014, to avoid reporting the gain.
37. Jake Jacobson sold his personal residence on June 15, 2011, which he had purchased a year earlier, in order
to accept a position at a new college 500 miles further away. Jake may not exclude any gain on the sale since
he did not live in the residence for at least two years.
38. Ruth Rumsfeld inherited a home in 2011 that had a basis to her of $100,000. She moved into the inherited
home and made it her new principal residence. She sold her former principal residence she had lived in for
the past six years for $90,000, realizing a gain of $20,000. She must report the $20,000 gain because she did
not reinvest the proceeds in her new principal residence.
39. The exchange of a warehouse for a printing press is a nontaxable like-kind exchange of property.
40. John Jobs is a successful building contractor who constructs and occupies a new home approximately once
every two or three years. Given he is married and satises the various requirements, he may exclude up to
$500,000 in gain on such sales once every two years.
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MULTIPLE CHOICE QUESTIONSCHAPTER 11
*Questions 4146, 6263, and 7273 have been adapted from the IRS Examinations.
41. Ed Edmonds exchanged a business truck with an adjusted basis of $320,000 for another business truck with
a fair market value of $20,000, a boat with a fair market value of $6,000, and $2,000 cash. What is the basis
of the new truck?
a. $18,000
b. $20,000
c. $24,000
d. $30,000
e. $32,000
42. A re destroyed Carl Cramers business automobile. Carl originally paid $24,000 for the automobile and
up to the time of the re had been allowed $15,000 in depreciation. Within three months the insurance
company replaced the old automobile with a new one which was worth $21,000. What is the basis of the new
automobile for purposes of computing depreciation?
a. $3,000
b. $9,000
c. $15,000
d. $21,000
e. $24,000
43. Which of the following statements are correct?
(1.) A sale is generally a transfer of property for money only or for a promise to pay money.
(2.) An exchange is a transfer of property in return for other property or services.
(3.) Recognized gain is always the excess of the amount realized over the adjusted basis of the property.
(4.) Realized loss is always the excess of the adjusted basis of the property over the amount realized.
(5.) The adjusted basis of the property is always the original cost adjusted for such items as casualty losses,
improvements, and depreciation.
a. 1, 2, and 3
b. 1, 2, and 4
c. 1, 3, and 4
d. 1, 4, and 5
e. 2, 3, and 4
44. Which of the following is not an example of a nontaxable like-kind exchange?
a. Improved real estate for unimproved real estate.
b. A printer for a computer.
c. Common stock of one company exchanged for common stock of another.
d. The trade of an apartment building for a store building.
e. Real estate for a ranch.
45. Tom Tanner traded in a printing press with an adjusted basis of $20,000 for a smaller press valued at $12,000.
In addition to the smaller press, Tom received $3,000 in cash and was relieved of the existing liability on the
old press of $5,000. What is Toms recognized gain?
a. $0
b. $3,000
c. $4,800
d. $5,000
e. $8,000
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46. Greg Grotto exchanged an eight-unit apartment building for a four-unit apartment building. His adjusted
basis for the eight-unit building was $320,000 and the fair market value was $400,000. The fair market
value of the four-unit building, which was subject to a $40,000 mortgage, was $440,000 on the date of the
transaction. What is Gregs taxable gain?
a. $120,000
b. $80,000
c. $48,000
d. $40,000
e. $0
47. Bobby and Betty Bennett sold for $450,000 in October of 2011 their residence that they had purchased in
2000 for $200,000. They made major capital improvements during their 10-year ownership totaling $40,000.
What is their recognized gain?
a. $250,000
b. $210,000
c. $-0d. $450,000
e. None of the above
48. Suppose instead that in the preceding problem the Bennetts sold their home for $800,000. They moved into
a smaller home costing $250,000. How much gain must they recognize?
a. $560,000
b. $500,000
c. $310,000
d. $60,000
e. None of the above
49. Assume instead that the Bennetts resided in a very depressed neighborhood and the home purchased in
2000 for $200,000 (capital improvements of $40,000) was sold for only $110,000. How much loss is
recognized?
a. $200,000
b. $130,000
c. $90,000
d. $-0e. None of the above
50. Ben Benson, single, sold his home that he had owned for 20 years for $695,000. He purchased it for $140,000
and made $45,000 of capital improvements on the home during his time of ownership. How much gain is
excluded?
a. $510,000
b. $500,000
c. $260,000
d. $250,000
e. None of the above
51. If Ben in the preceding problem purchased another home for $400,000, how much gain is recognized?
a. $510,000
b. $10,000
c. $260,000
d. $45,000
e. None of the above
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52. Calvin and Carolyn Coleman purchased a home in San Francisco for $375,000 on October 1, 2010. Calvin
obtained a job in Portland, Oregon, and on December 1, 2011, the Colemans sold their home in San Francisco
for $650,000. How much gain must the Colemans recognize?
a. $500,000
b. $291,667
c. $275,000
d. $-0e. None of the above
53. Assume that the Colemans in the preceeding problem instead sold their home on December 1, 2011, for
$800,000. How much gain must the Colemans recognize?
a. $425,000
b. $291,667
c. $133,333
d. $-0e. None of the above
54. Arthur Austens property having an adjusted basis of $68,000 is condemned by the state government. The
authorities replace his property with other qualied property which cost them $100,000. What is Arthurs
recognized gain?
a. $32,000
b. $0
c. $68,000
d. $100,000
55. Arthur Austens property having an adjusted basis of $68,000 is condemned by the state government. The
authorities replace his property with other qualied property which cost them $100,000. What is Arthurs
basis in the new property?
a. $32,000
b. $0
c. $68,000
d. $100,000
56. Bill Binkleys ofce building with a basis of $480,000 is condemned by the state. The state awards him
$600,000 and he then purchases a new ofce building for $520,000. What is Bills recognized gain?
a. $80,000
b. $120,000
c. $40,000
d. $0
57. Bill Binkleys ofce building with a basis of $480,000 is condemned by the state. The state awards him
$600,000 and he then purchases a new ofce building for $520,000. What is Bills basis in the new
residence?
a. $480,000
b. $520,000
c. $600,000
d. $400,000
58. Carl Coopers factory with a basis of $580,000 is destroyed by a re. The insurance proceeds are $550,000.
He replaces the factory at a cost of $600,000. What is Carls recognized gain or loss?
a. $30,000 loss
b. $20,000 gain
c. $50,000 loss
d. $0 gain or loss
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59. Brian Bush and Charles Chex exchange business machines. Brian gives Charles a machine with a basis of
$3,500 (fair market value $3,000) plus $2,000 in cash. Charles gives Brian a machine with a basis of $5,000
and a fair market value of $5,000. What is Charless recognized gain and his basis in the new machine?
a. $2,000 and $5,000
b. $500 and $3,500
c. $1,000 and $5,000
d. $0 and $3,000
60. David Drummond and Edward Engels exchange business cars. David gives Edward a car with a basis of
$15,000 and a fair market value of $21,500. David receives from Edward a car with a basis of $12,500 (fair
market value of $17,000) and $4,500 cash. What is Davids recognized gain and basis in the new car?
a. $6,500 and $17,000
b. $4,500 and $15,000
c. $0 and $10,500
d. $2,000 and $12,500
61. Jeff Jordan exchanges a truck used in his business plus $20,000 cash for a new truck with a fair market value
of $34,000. His adjusted basis in the old truck is $16,000 and its fair market value is $14,000. What is Jeffs
recognized gain or loss and the basis in the new truck?
a. $0 and $34,000
b. $20,000 gain and $16,000
c. $0 and $36,000
d. $2000 loss and $34,000
62. To be a nontaxable, like-kind exchange, all of the following conditions must be met except:
a. The property must be tangible property.
b. The exchange must meet the completed transaction requirement (180-day requirement).
c. The property must be (un)encumbered by mortgages or other liabilities.
d. The property must be business or investment property.
63. Tom Thompson traded in a station wagon (used in his business) which had an adjusted basis of $7,700 for a
new one costing $26,900. The auto dealer allowed a trade-in allowance of $8,000 on the old station wagon
and Tom paid $18,900 in cash. What is Toms basis in the new station wagon?
a. $18,900
b. $15,700
c. $26,600
d. $26,900
64. Gary and Gerdy Gray purchased a home for $125,000 on September 15, 2009. On October 7, 2010 they were
divorced, and as part of the divorce agreement, the home was transferred to Gerda who sold the home on
October 18, 2011 for $350,000. How much can Gerda exclude?
a. $350,000
b. $250,000
c. $225,000
d. $-0e. None of the above
65. Assume instead that in the preceding problem, as part of the divorce agreement, Gary retained ownership of
the residence but the use of the home was granted to Gerda as long as Gary owns the residence. If Gary sells
the residence on October 18, 2011 for $350,000, how much can Gary exclude?
a. $350,000
b. $250,000
c. $225,000
d. $-0e. None of the above
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66. Peter Paulson purchased a residence on February 19, 2009 for $180,000. On September 7, 2011, a tornado
completely destroyed their home. The home was insured for its replacement value and homes in Peters area
had appreciated greatly. He received proceeds of $420,000. How much does Peter include?
a. $250,000
b. $240,000
c. $-0d. $420,000
e. None of the above
67. If Peter in the preceding problem had received proceeds of $550,000. How much gain would be
recognized?
a. $-0b. $120,000
c. $180,000
d. $375,000
e. None of the above
68. How much of a replacement residence would Peter have to purchase in order to exclude or defer all gain
realized in the preceding problem?
a. $250,000
b. $180,000
c. $120,000
d. $300,000
e. None of the above
69. Which of the following statements concerning property qualifying for like- kind exchange treatment is
incorrect?
a. The property must be held for productive use in a trade or business or for investment.
b. The transfer of partnership interests qualify for like-kind exchange treatment.
c. The exchange of inventory for a business automobile does not qualify for like-kind exchange
treatment.
d. The exchange of unimproved property for improved property qualies for like-kind exchange
treatment.
70. Henry Higgins exchanged property with a basis of $100,000 and a fair market value of $125,000 for other
similar property with a fair market value of $160,000. He also gave up 100 shares of Bookbinder, Inc. stock
worth $25,000 with an adjusted basis of $15,000. What is Henrys realized gain and his recognized gain?
a. Realized gain: $10,000; Recognized gain: $10,000
b. Realized gain: $10,000; Recognized gain: $0
c. Realized gain: $45,000; Recognized gain: $10,000
d. Realized gain: $45,000; Recognized gain: $0
71. Which of the following is not an involuntary conversion?
a. Casualty
b. Livestock destroyed because of disease
c. Notice that property will be condemned because it is unt for human use
d. Threat of condemnation
72. Margaret Moraine exchanged a business auto that had an adjusted basis to her of $24,000 with an outstanding
liability of $4,000 for a new auto with a fair market value of $22,000. Margaret paid $2,000 in cash and her
liability was assumed by the other party. What is Margarets basis in the new auto?
a. $18,000
b. $20,000
c. $22,000
d. $24,000
e. None of the above
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73. Dexter Davenport had an adjusted basis of $230,000 in real estate which he held for investment. He exchanged
it for other real estate to be held for investment with a fair market value of $210,000, a boat with a fair market
value of $45,000 and $15,000 cash. What is Dexters basis in the real estate and the boat received?
a. Real Estate: $210,000; Boat: $30,000
b. Real Estate: $210,000; Boat: $45,000
c. Real Estate: $225,500; Boat: $45,000
d. Real Estate: $230,000; Boat: $40,000
74. Norman Nunn had purchased his residence on January 12, 2010, for $155,000 and then sold it on April 12,
2011 for $475,000 because of illness. How much gain must Norman recognize?
a. $250,000
b. $163,750
c. $156,250
d. $475,000
e. None of the above
75. If Norman in the preceding problem had instead sold the home for $300,000, how much must Norman
recognize?
a. $250,000
b. $163,750
c. $156,250
d. $-0e. None of the above
76. Real property where Paul Petersons warehouse is located is condemned by the state government on November
23, 2011. Pauls adjusted basis in the warehouse is $420,000. He receives its $1 million condemnation award
from the state on March 5, 2012. What is the latest date that Paul can purchase qualied replacement property
and be able to defer the entire $580,000 realized gain from the condemnation?
a. November 23, 2014.
b. December 31, 2014.
c. March 5, 2015.
d. December 31, 2015.
e. November 23, 2015.
77. Real property where Paul Petersons warehouse is located is condemned by the state government on November
23, 2011. Paul purchased the warehouse years ago for $800,000; its adjusted basis in the warehouse is
$420,000. He receives its $1 million condemnation award from the state on March 5, 2012. Which of the
following properties would meet the denition of qualied replacement property for purposes of postponing
the entire realized gain on the involuntary conversion?
a. A new warehouse.
b. A parking lot for employees.
c. An ofce building
d. Both a and b.
e. All of the above.
78. Real property where Paul Petersons warehouse is located is completely destroyed by re on November
23, 2011. Paul purchased the warehouse in 2005 for $800,000; its adjusted basis in the warehouse is
$420,000. He receives $1 million from the insurance company on March 5, 2012. What amount must Paul
reinvest in qualied replacement property and be able to defer the entire $580,000 realized gain from the
condemnation?
a. $420,000.
b. $520,000.
c. $800,000.
d. $1,000,000.
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79. Susan Shorts ofce building is destroyed in a re. The adjusted basis in the building is $200,000 and its
fair market value is $350,000. The insurance company reimburses Susan $330,000 for its loss, and she
immediately purchases a new ofce building for $310,000. What is Susans recognized gain and adjusted
basis in the new ofce building?
a. $20,000 and $200,000, respectively.
b. $0 and $310,000, respectively.
c. $0 and $330,000, respectively.
d. $20,000 and $310,000, respectively.
e. None of the above.
80. A corporation exchanges machinery plus $20,000 cash for new machinery worth $34,000. At the time of the
exchange, the corporations adjusted basis in the machine it exchanges is $16,000 and its fair market value is
$14,000. What amount will the corporation recognize on the exchange and what will be its depreciable basis
in the new machine?
a. $0 and $36,000, respectively.
b. $0 and $34,000, respectively.
c. $2,000 loss and $34,000, respectively.
d. $20,000 gain and $16,000, respectively.
81. Bonilla Companys ofce building was destroyed by a tornado. The insurance company paid Bonilla $600,000
for the destruction of the ofce building within 30 days after the tornado. At the time of the tornado, Bonilla had
an adjusted basis of $240,000 in the ofce building. Within six months after the tornado, Bonilla bought a new
ofce building for $500,000 by paying $320,000 in cash and signing a mortgage note for $180,000. What is the
minimum amount of gain that Bonilla must recognize on the involuntary conversion of its ofce building?
a. $0.
b. $100,000.
c. $280,000.
d. $360,000.
82. Anderson Company exchanged land used in its business for another parcel of land with a fair market value
of $160,000. In addition, Anderson received $40,000 in cash. Anderson will use the new parcel of land in
its business. The land that Anderson gave in exchange had an adjusted basis of $230,000 at the time of the
exchange. What is Andersons adjusted basis in the new land it received in the exchange?
a. $160,000.
b. $190,000.
c. $230,000.
d. $260,000.
83. Spears Companys delivery truck was destroyed in a ood. The insurance company paid Spears $20,000 for
the delivery truck. The delivery truck had an adjusted basis of $24,000 at the time of the ood. Within 10
days after receiving the insurance proceeds for the destruction of the delivery truck, Spears bought another
delivery truck that cost $19,000. How much gain or loss does Spears recognize on the involuntary conversion
of its delivery truck?
a. $1,000 gain
b. $3,000 loss
c. $4,000 loss
d. $24,000 loss
84. Winston White exchanged business real estate that had an adjusted basis of $16,000 for other business real
estate with a fair market value of $15,000 and $4,000 cash. What is Winstons basis in the property received?
a. $12,000
b. $15,000
c. $16,000
d. $19,000
e. $20,000
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85. A barn, destroyed by re, had a basis of $40,000. The owner received $50,000 in insurance proceeds. The
barn was replaced by another barn costing $45,000. The basis of the new barn is:
a. $40,000
b. $45,000
c. $50,000
d. $55,000
e. $60,000
86. Elvera Easton traded in copying equipment with an adjusted basis of $10,000 for other copying equipment
valued at $6,000. She also received $1,500 in cash, and her mortgage of $2,500 on the traded computer was
wiped out. What is her gain on this exchange, if any?
a. $0
b. $1,500
c. $2,500
d. $4,000
e. $6,000
87. Davis Drake traded in his old truck, which had an adjusted basis of $13,800, for a new one costing $30,000.
The dealer, Ace Trucks, allowed $18,000 on the old truck and Davis gave $12,000 in cash, as well. What is
Daviss basis in the new truck?
a. $13,800
b. $18,000
c. $25,800
d. $30,000
e. $31,800
88. Gloria Gates sold the building in which she operated her business. Gloria had acquired the property many
years ago for $150,000 and over this period had made major improvements costing $180,000. Gloria had
claimed $60,000 in straight-line depreciation at the time of the sale. The selling expenses paid by Gloria
amounted to $40,000. Bill purchased the property by (1) giving Gloria $170,000 in cash; (2) giving Gloria
unlike property with a fair market value of $180,000; (3) assuming Glorias mortgage on the property of
$140,000; and (4) paying a delinquent real estate tax bill on the property of $50,000. What is Glorias gain
on the sale?
a. $40,000
b. $180,000
c. $220,000
d. $230,000
e. $270,000
89. Hank Hands owns a sole proprietorship that charters various types of aircraft. Hank exchanged a helicopter
with an adjusted basis of $156,000 used in his business for a smaller helicopter with a value of $142,000.
On the exchange, Hank was relieved of an existing loan of $10,000 on the original helicopter and received
$4,000 in cash. What is Hanks gain or loss on the trade?
a. ($14,000)
b. $0
c. $4,000
d. $10,000
e. $14,000
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90. A warehouse used by Dirk Dumont in his business was condemned by the state. The fair market value of
the warehouse was $300,000; however, the state only awarded Dirk $250,000. Dirks adjusted basis in the
warehouse was $100,000. Dirk spent $75,000 to renovate an old barn that he owned in order to convert it to
a warehouse, and he also purchased a new warehouse for $125,000. Both warehouses will be used to house
the equipment previously held in the state condemned warehouse. What amount should Dirk report as gain
or loss on the condemnation if an election is made under Code Sec. 1033?
a. ($100,000)
b. ($50,000)
c. $0
d. $50,000
e. $100,000
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CCH Federal TaxationComprehensive Topics
SUPPLEMENTARY PROBLEMSCHAPTER 11
91. Melvin Murphy owned a farm with an adjusted basis of $390,000 which was condemned by the state. He
received a $470,000 condemnation award and purchased a new farm for $420,000 within one year.
(a.) What is Melvins recognized gain?
(b.) What is Melvins basis in his new farm?
(c.) What would be Melvins recognized gain if the price of the new farm had been $490,000? What would
the basis be?
(d.) What would be Melvins recognized gain if the cost of the new farm was $370,000? What would be the
basis of the new farm?
(e.) If the condemnation award was $360,000, what would be Melvins recognized gain or loss and the basis
in the new farm?
92. Michael and Mary Mason sold for $380,000 in November of 2011 their residence that they had purchased in
2001 for $75,000. They made major capital improvements during their 10-year ownership totaling $25,000.
(a.) What is their excluded gain? How much must they recognize?
(b.) Suppose instead that the Masons sold their home for $720,000. They moved into a smaller house costing
$220,000. What is their excluded gain? How much must they recognize?
(c.) Assume instead that the Masons resided in a very depressed neighborhood and the home was sold for
only $60,000. How much gain or loss is recognized?
93. Mathew Murphy, single, sold his home that he had owned for 20 years for $670,000. He purchased it for
$110,000 and made $40,000 of capital improvements on the home during his time of ownership.
(a.) How much gain is excluded? How much is recognized?
(b.) If John purchased another home for $420,000, how much is excluded and recognized?
94. Ron Ryder and Joe Jetty exchanged like-kind business property. Ron had an adjusted basis of $30,000 in his
property (fair market value of $33,000). Joes property had an adjusted basis of $21,000 and a fair market
value of $23,000, and Joe gave Ron $10,000 in cash. Determine Rons and Joes realized gain or loss,
recognized gain or loss, and the basis in their new property.
95. Steve Stromm transfers an ofce building with an adjusted basis of $200,000 and a fair market value of
$300,000 for Andrew Astors ofce building (adjusted basis $190,000) with a fair market value of $250,000.
Steves mortgage of $120,000 is assumed by Andrew whose mortgage of $70,000 is assumed by Steve. What
is the realized and recognized gain or loss for Steve and Andrew and what are their bases in their acquired
buildings?
96. Paul and Paula Parker purchased a home in Washington, D.C. for $340,000 on November 4, 2010. Paul
obtained a job in Roanoke, Virginia, and on December 4, 2011, the Parkers sold their home in Washington
for $570,000.
(a.) How much gain can the Parkers exclude and how much is recognized?
(b.) Assume that the Parkers instead sold their home on December 4, 2011, for $760,000.
97. Ray Randall purchased a residence on February 14, 2009 for $190,000. On September 15, 2011, a tornado
completely destroyed their home. The home was insured for its replacement value and homes in the Rays
area had appreciated greatly. received He proceeds of $410,000.
(a.) How much does Ray exclude and recognize?
(b.) If Ray instead had received proceeds of $555,000. How much gain would be excluded and recognized?
How much of a replacement residence would have to be purchased in order to exclude or defer all gain
realized?
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98. Elsie Elmwood exchanges a business building with an adjusted basis of $138,000 and a fair market value
of $200,000 for Grace Goodes land (to be held for investment) with an adjusted basis of $110,000 and a
fair market value of $260,000. Elsie assumes Graces $60,000 mortgage on the land. Determine Elsies and
Graces realized gain or loss, recognized gain or loss, and the basis of the new property.
99. Lyle Lawrence transfers an apartment building with an adjusted basis of $300,000 and a fair market value
of $480,000 for Carl Cushions apartment building (adjusted basis $280,000) with a fair market value of
$400,000. Lyles mortgage of $120,000 is assumed by Carl, whose mortgage of $40,000 is assumed by Lyle.
What is the realized and recognized gain or loss for Lyle and Carl, and what are their bases in their acquired
buildings?
100. Sally Sawyer owned a clothing store which was condemned on November 25, 2011. On January 7, 2012,
she received a condemnation award of $280,000. The adjusted basis of the clothing store was $120,000. She
purchased another clothing store on March 18, 2012, for $300,000.
(a.) What is Sallys lowest recognized gain or loss? What is her basis in the clothing store?
(b.) What would be the answer to (a) if the replacement cost was $240,000?
(c.) What is the last possible date on which Sally could have purchased qualied replacement property?
(d.) What is the answer to (c) if the clothing store had been destroyed by re instead of being condemned?
2011 CCH. All Rights Reserved.
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CCH Federal TaxationComprehensive Topics
ANSWERS TO TRUE-FALSE QUESTIONSCHAPTER 11
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
False. This was a sale and not a like-kind exchange. Alfred fully recognizes the loss on the sale of the old
truck and the basis of the new truck is the cost of $24,000.
False. The gain is recognized only to the extent of the cash received, of $2,000.
True. Leonard has a recognized loss of $20,000. The nonrecognition in involuntary conversions applies only
to gains.
True. Melvins reading about the condemnation in the newspaper and his conrming it by phone with a
public ofcial give him reasonable grounds to believe the property will be taken.
False. Ray must recognize $15,000 gain, to the extent that the compensation of $120,000 exceeds the
replacement cost of $105,000.
False. The exclusion on the sale of a personal residence is $500,000 for taxpayers ling jointly and $250,000
for single individuals.
False. A taxpayer is required to own and occupy the residence two, not three, years out of the last ve years
in order to qualify for the exclusion.
True. Unimproved land can be exchanged for an apartment house and be a like-kind exchange.
False. The general rule is that there is nonrecognition of gain and loss.
False. Recognition is only postponed. Also, if boot is involved there may be recognition at the time of
exchange.
True. Gain is recognized to the extent of the boot received but not to exceed the gain realized.
True.
False. The requirements for replacement property under a casualty and theft are more restrictive than for likekind exchanges. The property must be similar in service or use rather than just merely like-kind.
False. If an involuntary conversion is for money, nonrecognition is an election. If the involuntary conversion
is for other property, nonrecognition is mandatory.
False. Losses are recognized if the property is business or income-producing property. Personal casualty
losses are also recognized (subject to limits) but not condemnation losses from personal-use assets.
True.
False. The exclusion may only be taken once every two years.
False. The excluded gain is a permanent exclusion and does not reduce the basis of the new residence.
True. Taxpayers may elect out of this exclusion provision for any sale or exchange. Thus, for example,
taxpayers who plan to sell within two years two properties that met the exclusion eligibility requirements and
who rst sell the property with the lesser gain may choose to elect out of the exclusion to reserve its use for
the second sale where the gain is larger.
True. The individual may still use the exclusion.
False. The excess gain may not be deferred through a reduction in the basis of the new residence. This is a
potential disadvantage of the new law.
False. A realized loss on the sale of a residence may not be deducted nor may it be added on to the basis of a
new residence. The new law has not changed this from the old law.
False. The transferor will recognize gain under the same rules as in a boot received situation. (It is as if the
transferor received cash and then paid off the liability.)
True.
False. Only that portion of the residence that is used as a principal residence can qualify for the exclusion if
the residence is used partly for business purposes.
True.
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27. False. The time during which the taxpayers spouse or former spouse owned the residence can be added to
the taxpayers period of ownership.
28. False. If a taxpayer becomes physically or mentally incapable of self-care, the taxpayer is deemed to use a
residence as a principal residence during the time in which the taxpayer owns the residence and resides in a
care facility licensed by a State or political subdivision such as in a nursing home. The taxpayer must have
owned and used the residence as a principal residence for a period of at least one year during the ve years
preceding the sale in order to use this provision.
29. False. Taxpayers that realize a loss on a like-kind exchange must wait to recognize the tax benets associated
with deducting the loss.
30. False. Since the exchange of any business or investment realty for other business or investment realty qualies
as a like-kind exchange, both of these would qualify.
31. True. A like-kind exchange occurs when a business truck is traded in for a new business truck.
32. True. It is possible for both parties in a like-kind exchange to receive boot.
33. True. The replacement for a condemnation of real property need only be like-kind; it would in this case not
have to be an apartment building.
34. False. The use of personal-use property will not qualify the transaction for nontaxable exchange.
35. True.
36. True. The time for replacement is the last day of the year 3 years after the proceeds are received (June 29,
2011). Thus, the property needs to be replaced by December 31, 2014.
37. False. Jake can get a pro-rated exclusion if the move was job related.
38. False. There is no need to reinvest the proceeds to get the exclusion on the sale of a residence.
39. False. This is an exchange of real property for personal property so it does not qualify as a like-kind
exchange.
40. True. If all the requirements are met, he can use the exclusion repeatedly.
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ANSWERS TO MULTIPLE CHOICE QUESTIONSCHAPTER 11
41. c. The basis is $24,000 ($32,000 adjusted basis of old asset less the boot received of $8,000). Although there
was a realized loss of $4,000, there was no recognized loss.
42. b. The basis is $9,000 ($9,000 basis of the old automobile). Since Carl received the new automobile from the
insurance company rather than receiving a cash award, the basis is the same as the basis of the old property.
43. b. Statements 1, 2, and 4 are correct. Statement 3 is not correct because it is dening realized gain rather than
recognized gain, and all realized gain is not recognized. Statement 5 is not correct because cost is not always
the starting point in guring basis, e.g., in the case of inherited property or property received by gift.
44. c. Stocks do not qualify for like-kind property, unless stock is traded for stock in the same corporation.
45. a. There is no realized gain since the fair market value of the property received is $20,000 ($12,000 plus
$3,000 plus $5,000 mortgage) and is equal to the basis of the property given up.
46. e. The giving of boot (in this case, the assumption of the mortgage) has no effect on the recognition of
realized gain. The fair market value of the property received is $440,000 but the basis of the property given
up and the boot given (mortgage assumed) is $360,000 ($320,000 + $40,000). Although there is a realized
gain of $80,000, there is no recognized gain.
47. c. The Bennetts basis of the residence at the time of the sale is $240,000 and their realized gain is $210,000
($450,000 less $240,000). They may exclude the total $210,000 realized gain and therefore they have no
recognized gain.
48. d. The Bennetts have a realized gain of $560,000 ($800,000 less than $240,000). They may exclude
$500,000 and must recognize $60,000. The fact that they moved into another home is irrelevant and there is
no oportunity to defer the $60,000 gain through an adjustment in the basis of the new residence as was the
case under the old law.
49. d. The Bennetts have a realized loss of $130,000 ($110,000 less $240,000), But none of it is recognized,
since taxpayers are not allowed to deduct losses on the sale of personal-use assets.
50. c. Ben has a realized gain of $510,000 ($695,000 less $185,000), but as a single individual, he can only
exclude $250,000 and he must recognize $260,000.
51. c. Bens exclusion is still $250,000, and he must still recognize $260,000. The fact that he moved into
another home is irrelevant and there is no oportunity to defer the $260,000 gain through an adjustment in the
basis of the new residence as was the case under old law
52. d. The Colemans have owned and used the home for less than two years but because they are selling for a jobrelated reason, they may pro-rate the exclusion. The amount of exclusion is $291,667 ($500,000 14 months
divided by 24 months = $291,667). Since the realized gain is only $275,000 ($650,000 less $375,000), they
can exclude the whole $275,000 and need not recognize any gain.
53. c. The Colemans have a realized gain of $425,000, of which $291,667 is excluded and the remaining $133,333
is recognized.
54. b. No gain is recognized when condemned property is replaced with other property.
55. c. The basis of the new property is the same as the basis of the old property.
56. a. Bills realized gain is $120,000 but if he makes the election his recognized gain is $80,000 ($600,000 less
$520,000 cost of new property).
57. a. The basis of the new property is $480,000 ($520,000 cost of new property less the gain not recognized of
$40,000 ($120,000 less $80,000)).
58. a. The realized loss is $30,000 ($580,000 less $550,000) and it is recognized.
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59. d. The recognized gain is $0 and the basis of the new property is $3,000.
FMV received ($3,000 + $2,000)
Less: Basis given
Gain realized and recognized
Basis of old property
Less: Boot received
Basis of new property
$5,000
5,000
$
0
$5,000
$2,000
$3,000
60. b. Davids recognized gain is $4,500 and his basis is $15,000 as follows:
FMV received ($17,000 + $4,500)
Less: Basis given
Gain realized
Gain recognized
Basis of old property
Plus: Gain recognized
Less: Boot received
Basis of new property
$21,500
15,000
$ 6,500
$ 4,500
$15,000
4,500
4,500
$15,000
61. c. Jeff recognizes no gain or loss and his basis in the new asset is $36,000 as follows:
FMV received ($3,000 + $2,000)
Less: Basis given
Boot given
Loss realized
Loss recognized
Basis of old property
Plus: Boot given
Basis of new property
$34,000
$16,000
20,000
36,000
($2,000)
$
0
$16,000
20,000
$36,000
62. c. There is no need to have mortgages or liabilities involved in order for a transaction to be a nontaxable, likekind exchange. The property, however, must be tangible property, must be business or investment property,
and must meet the 180-day requirement.
63. c. There is no gain or loss recognized in a where cash boot is given situation. Therefore, the basis of the new
station wagon is the basis of the old station wagon of $7,700 plus the boot given of $18,900, or $26,600.
64. c. Gerda excludes the $225,000 gain since she can count the time that Gary owned the residence which
makes the ownership and use more than two years.
65. c. Gary can exclude the $225,000 gain since he can count the time that Gerda used the residence as part of
the divorce agreement.
66. c. Peter does not recognize any of the $240,000 realized gain on the involuntary conversion of his home by
the tornado because it is less than the $250,000 exclusion allowed for an individual.
67. b. Peter has a realized gain of $370,000 ($550,000 less $180,000). He may exclude $250,000 and would have
to recognize $120,000 gain.
68. d. If, Peter purchased a home for $300,000 or more, he could defer the remaining $120,000 of realized gain.
The $550,000 would be reduced by the $250,000 gain excluded leaving $300,000 of proceeds to be used
when applying the gain deferral provision under the involuntary conversion rules of Code Sec. 1033.
69. b. The transfer of the partnership interest does not qualify for like-kind exchange treatment.
70. c. The realized gain is $45,000 ($160,000 - $100,000 - $15,000). The recognized gain is $10,000, the excess
of the fair market value of the stock of $25,000 (boot given) less the basis of the stock of $15,000.
2011 CCH. All Rights Reserved.
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CCH Federal TaxationComprehensive Topics
71. c. A notice that property will be condemned because it is unt for human use is not an involuntary
conversion.
72. c. The amount of any liabilities of the seller assumed by the buyer is treated as money received by the seller
and decreases the sellers basis in the same manner as cash received. Margarets basis in the new car is her
basis in the old car ($24,000) reduced by her outstanding liability that was assumed by the buyer ($4,000)
and increased by the $2,000 that she paid in cash.
73. b. Dexter has a realized gain of $40,000, the difference between the amount realized of $270,000 ($210,000
plus $45,000 plus $15,000) and the basis of $230,000. The recognized gain is $40,000, to the extent of boot
received but not to exceed the gain realized. The basis of the real estate is $210,000 or $230,000 plus $40,000
gain recognized minus $60,000 boot received (Method 1) or $210,000 fair market value less any deferred
gain which is $0 (Method 2). The basis of the boat is the fair market value of $45,000.
74. b. Norman can exclude $156,250 ($250,000 times 15 months divided by 24 months = $156,250). He must
recognize $163,750, the difference between the realized gain of $320,000 ($475,000 less $155,000) and the
exclusion of $156,250.
75. d. Norman would still be able to exclude up to $156,250, which is more than the realized gain of $145,000
($300,000 less $155,000). Therefore, he does not need to recognize any gain.
76. d. In a condemnation, Paul has until three years after the end of the year in which proceeds are received.
77. e. All of the listed items are qualied replacement property for purposes of postponing the gain in a
condemnation since like-kind rules for replacement are applied in the case of a condemnation.
78. d. The realized gain is $580,000 but in order to defer the entire gain, Paul would have to invest an amount
equal to or greater than the proceeds of $1,000,000.
79. a. The realized gain is $130,000 ($330,000 less $200,000) and the recognized gain is $20,000 ($330,000 less
$310,000 cost of the new building). The basis of the new building is $200,000 ($310,000 cost of the new
building less the deferred gain of $110,000).
80. a. The realized loss is $2,000 ($34,000 less the sum of $16,000 and $20,000), but none is recognized. The
basis in the new machine is the basis of the old machine of $16,000 plus the boot given of $20,000 or
$36,000. Alternatively, the postponed loss of $2,000 is added to the FMV of the new machinery ($34,000
plus $2,000 = $36,000).
81. b. The gain recognized is the lesser of the $360,000 gain realized ($600,000 - $240,000) or the $100,000
excess of the amount realized ($600,000) minus the cost of the qualied replacement property ($500,000).
The cost of the qualied replacement property includes the $320,000 cash paid and the $180,000 mortgage
note.
82. b. $190,000 ($160,000 fair market value of new land + $30,000 loss realized and deferred). ($160,000 FMV
of the new land + $40,000 cash received) less $230,000 adjusted basis on land transferred = $30,000 loss
realized. Losses are never recognized on the exchange of like-kind property even if boot is received or paid.
The basis in the new land is $230,000, the basis of the old land less the $40,000 cash received.
83. c. $4,000 ($30,000 amount realized less $24,000 adjusted basis). Losses on the involuntary conversion of
business property are recognized. Whether Spears purchases replacement property is not relevant.
84. b. The realized and recognized gain is $3,000 ($15,000 + $4,000 - $16,000). The basis of the new asset is
$15,000 ($16,000 + $3,000 recognized gain - $4,000 cash received). Alternatively, the basis is the fair market
value of the new asset ($15,000) less the gain not recognized ($0).
85. a. The realized gain is $10,000 ($50,000 - $40,000) and the recognized gain is $5,000 ($50,000 - $45,000
cost of the new property). The basis of the new asset is $40,000 ($45,000 cost of new - the gain not recognized
of $5,000).
86. a. The amount realized is $10,000 ($6,000 + $1,500 + $2,500 relief of mortgage) and the basis of the old
asset is $10,000, so the gain is $0.
87. c. The basis of the new asset is $25,800 ($13,800 basis of the old asset + the $12,000 cash given).
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88. d. $230,000. The amount realized is $500,000 ($170,000 + $180,000 +$140,000 +$50,000 - $40,000) and the
adjusted basis is $270,000 ($150,000 +$180,000 - $60,000) so the gain is $230,000.
89. b. $0. The amount realized is $156,000 ($142,000 + $10,000 relief of loan + $4,000 cash received) and the
adjusted basis is $156,000, so the gain is $0.
90. d. $50,000. The amount of gain realized is $150,000 ($250,000 - $100,000) and the amount recognized is
the extent to which the amount realized of $250,000 exceeds the cost of the new assets of $125,000 and
$75,000.
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CCH Federal TaxationComprehensive Topics
ANSWERS TO SUPPLEMENTARY PROBLEMSCHAPTER 11
91. (a.) Melvins recognized gain is $50,000 (the excess of $470,000 over the replacement cost of $420,000). His
realized gain was $80,000. ($470,000 less $390,000).
(b.) Melvins basis in his new farm is $390,000 ($420,000, the cost of the new farm less the gain not recognized
of $30,000 ($80,000 - $50,000)).
(c.) There would be no recognized gain if the price of the new farm was $490,000 because it exceeded the
proceeds. His basis would be $410,000 ($490,000 - $80,000 gain not recognized).
(d.) If the cost of the new farm was $370,000, the recognized gain would be the realized gain of $80,000. The
basis of the new farm would be the cost of the new farm, or $370,000.
(e.) If the condemnation award was $360,000, there would be a realized loss of $30,000, which would be
recognized, and the basis in the new farm would be the replacement cost or $420,000.
92. (a.) The Masons basis of the residence at the time of the sale is $100,000 and their realized gain is $280,000
($380,000 less $100,000). They may eclude the total $280,000 realized gain and therefore they may have no
recognized gain.
(b.) The Masons have a realized gain of $620,000 ($720,000 less $100,000). They may exclude $500,000
and must recognize $120,000. The fact that they moved into another home is irelevant and there is no
opportunity to defer the $120,000 gain through an adjustment in the basis of the new residence as was the
case under the old law.
(c.) The Masons have a realized loss of $40,000 ($60,000 less $100,000), but none of it is recognized, since
taxpayers are not allowed to deduct losses on the sale of personal-use assets.
93. (a.) Mathew has a realized gain of $520,000 ($670,000 less $150,000), but as a single individual, he can only
exclude $250,000 and he must recognize $270,000.
(b.) Mathews exclusion is still $250,000, and he must still recognize $270,000. The fact that he moved into
another home is irrelevant and there is no opportunity to defer the $270,000 gain through an adjustment in
the basis of the new residence as was the case under the old law.
94. Ron has a realized gain of $3,000, which is recognized, and the basis of his new property is $23,000.
FMV of property received ($23,000 + $10,000)
Less: Adjusted basis given
Gain realized
Gain recognized
Method I: Basis of old property
Plus: Gain recognized
Less: Boot received
Basis of new property
Method II: FMV of new property
Less: Gain not recognized
Basis of new property
$33,000
30,000
$3,000
$3,000
$30,000
3,000
10,000
$23,000
$23,000
0
$23,000
Joe has a realized gain of $2,000, recognizes no gain, and the basis of his new property is $31,000.
FMV of property received
Less: Adjusted basis given ($21,000 + $10,000)
Gain realized
Gain recognized
Method I: Basis of old property
Plus: Boot given
Basis of new property
Method II: FMV of new property
Less: Gain not recognized
Basis of new property
Chapter 11
$33,000
31,000
$2,000
$0
$21,000
10,000
$31,000
$33,000
2,000
$31,000
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743
95. Steves realized gain is $140,000 and his recognized gain is $50,000. The basis of his new ofce building is
$200,000.
FMV of property received
Plus: Mortgage assumed by Andrew
Less: Mortgage assumed by Steve
Total consideration received
Less: Adjusted basis
Gain realized
Gain recognized
Method I: Basis of old property
Plus: Gain recognized
Plus: Mortgage assumed by Steve
Less: Mortgage assumed by Andrew
Basis of new property
Method II: FMV of new property
Less: Gain not recognized
Basis of new property
$250,000
120,000
30,000
$340,000
200,000
$140,000
$50,000
$200,000
50,000
70,000
120,000
$200,000
$250,000
50,000
$200,000
Andrews realized gain is $60,000 and his recognized gain is $0. The basis of his new ofce building is
$240,000.
FMV of property received
Plus: Mortgage assumed by Steve
Less: Mortgage assumed by Andrew
Total consideration received
Less: Adjusted basis
Gain realized
Gain recognized
Method I: Basis of old property
Plus: Gain recognized
Plus: Mortgage assumed by Andrew
Less: Mortgage assumed by Steve
Basis of new property
Method II: FMV of new property
Less: Gain not recognized
Basis of new property
$300,000
70,000
120,000
$250,000
190,000
$60,000
--0-$190,000
50,000
120,000
70,000
$240,000
$300,000
60,000
$240,000
96. (a.) The Parkers have owned and used the home for less than two years but because they are selling for a jobrelated reason, they may pro-rate the exclusion. The amount of exclusion is $270,833 ($500,000 13 months
divided by 24 months = $270,833). Since the realized gain is only $230,000 ($570,000 less $340,000), they
can exclude the whole $230,000 and need not recognize any gain.
(b.) The Parkers have a realized gain of $420,000, of which $270,833 is excluded and the remaining $149,167
is recognized.
97. (a.) Ray does not recognize any of the $220,000 realized gain on the involuntary conversion of his home by
the tornado because it is less than the $250,000 exclusion allowed for a single individual.
(b.) Ray has a realized gain of $365,000 ($555,000 less $190,000). He may exclude $250,000 and would
have to recognize a $115,000 gain. If, however, he purchased a home for $305,000 or more, he could defer
the remaining $115,000 of realized gain. The $555,000 would be reduced by the $250,000 gain excluded
leaving $305,000 of proceeds to be used when applying the gain deferral provision under the involuntary
conversion rules of Code Sec. 1033.
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98. Elsie has a realized gain of $62,000 but no recognized gain. The basis of her new property is $198,000.
FMV received
Less: Basis given
Mortgage assumed by Elsie
Gain realized
Gain recognized
Method I: Basis of old property
Plus: Mortgage assumed by Elsie
Basis of new property
Method II: FMV of property received
Less: Deferred gain
Basis of new property
$260,000
$138,000
60,000
198,000
$ 62,000
$0
$138,000
60,000
$198,000
$260,000
62,000
$198,000
Grace has realized gain of $150,000 and recognized gain of $60,000. The basis of her new property is
$110,000.
FMV received ($200,000 + $60,000)
Less: Basis given
Gain realized
Gain recognized
Method I: Basis of old property
Plus: Gain recognized
Less: Mortgage assumed by Elsie
Basis of new property
Method II: FMV of property received
Less: Deferred gain
Basis of new property
$260,000
110,000
$150,000
$ 60,000
$110,000
60,000
60,000
$110,000
$200,000
90,000
$110,000
99. Lyles realized gain is $180,000 and his recognized gain is $80,000. The basis of his acquired property is
$300,000.
FMV of property received
Plus: Mortgage assumed by Carl
Less: Mortgage assumed by Lyle
Total consideration received
Less: Adjusted basis
Gain realized
Gain recognized
Method I: Basis of old property
Plus: Mortgage assumed by Lyle
Less: Mortgage assumed by Carl
Plus: Gain recognized
Basis of new property
Method II: FMV of property received
Less: Deferred gain
Basis of new property
Chapter 11
$400,000
120,000
40,000
$480,000
$300,000
$180,000
$ 80,000
$300,000
40,000
120,000
80,000
$300,000
$400,000
100,000
$300,000
2011 CCH. All Rights Reserved.
745
Testbank
Carls realized gain is $120,000 and his recognized gain is $0. The basis of his acquired property is
$360,000.
FMV of property received
Plus: Mortgage assumed by Lyle
Less: Mortgage assumed by Carl
Total consideration received
Less: Adjusted basis
Gain realized
Gain recognized
Method I: Basis of old property
Plus: Mortgage assumed by Carl
Less: Mortgage assumed by Lyle
Basis of new property
Method II: FMV of property received
Less: Deferred gain
Basis of new property
$480,000
40,000
120,000
$400,000
$280,000
$120,000
$0
$280,000
120,000
40,000
$360,000
$480,000
120,000
$360,000
100. (a.) Sally has $160,000 realized gain and, assuming she makes the election, no recognized gain because the
purchase price of the replacement property is greater than the condemnation award. The basis of the new
property is $140,000 ($300,000 cost of new property - gain not recognized of $160,000).
(b.) The recognized gain is $40,000, the excess of the condemnation award of $280,000 over the replacement
cost of $240,000. The basis of the new clothing store is $120,000 (the cost of the new clothing store of
$240,000 - the gain not recognized of $120,000).
(c.) Sally has until December 31, 2015, to replace with qualied property because she has until three years
after the end of the year in which the proceeds are realized in the case of a condemnation.
(d.) Sally has until December 31, 2014, to replace with qualied property because she has until two years
after the end of the year in which the proceeds are realized in the case of a casualty.
2011 CCH. All Rights Reserved.
Chapter 11
746
CCH Federal TaxationComprehensive Topics
DIFFICULTY LEVEL RATINGSCHAPTER 11
The following table denotes the relative difculty level of each question. Teachers may wish to organize test
questions based on the difculty level of the particular class.
True-False Question Ratings
1. Moderate
2. Moderate
3. Moderate
4. Moderate
5. Moderate
6. Easy
7. Easy
8. Easy
9. Easy
10. Easy
11. Moderate
12. Moderate
13. Moderate
14. Moderate
15. Moderate
16. Moderate
17. Moderate
18. Moderate
19. Moderate
20. Moderate
21. Moderate
22. Moderate
23. Moderate
24. Moderate
25. Moderate
26. Moderate
27. Moderate
28. Moderate
29. Moderate
30. Moderate
31. Moderate
32. Moderate
33. Moderate
34. Moderate
35. Moderate
36. Difcult
37. Moderate
38. Moderate
Chapter 11
39. Moderate
40. Difcult
Multiple Choice Question Ratings
41. Moderate
42. Moderate
43. Difcult
44. Easy
45. Moderate
46. Moderate
47. Moderate
48. Moderate
49. Moderate
50. Moderate
51. Moderate
52. Moderate
53. Moderate
54. Moderate
55. Moderate
56. Moderate
57. Moderate
58. Moderate
59. Moderate
60. Moderate
61. Moderate
62. Easy
63. Easy
64. Moderate
65. Moderate
66. Moderate
67. Moderate
68. Moderate
69. Moderate
70. Moderate
71. Easy
72. Moderate
73. Moderate
74. Moderate
75. Moderate
76. Moderate
2011 CCH. All Rights Reserved.
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747
77. Moderate
78. Moderate
79. Difcult
80. Difcult
81. Moderate
82. Moderate
83. Moderate
84. Moderate
85. Moderate
86. Moderate
87. Moderate
88. Difcult
89. Difcult
90. Difcult
Supplementary Problem Ratings
91. Moderate
92. Moderate
93. Moderate
94. Difcult
95. Difcult
96. Moderate
97. Moderate
98. Difcult
99. Difcult
100. Moderate
2011 CCH. All Rights Reserved.
Chapter 11