ACC_4301_Solutions_to_Problems_(Chapter_15)

ACC_4301_Solutions_t - PROBLEMS 29 a Amount realized Adjusted basis Realized loss Recognized loss $210,000(250,000($ 40,000($ 0 Presuming both

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PROBLEMS 29. a. Amount realized $210,000 Adjusted basis (250,000) Realized loss ($ 40,000 ) Recognized loss ($ –0–) Presuming both properties are held as investments, the exchange qualifies for § 1031 postponement treatment. p. 15-3 b. Because of the postponed loss, the basis in the land is $250,000 ($210,000 + $40,000). Example 10 30. a. Amount realized $16,000 Adjusted basis (19,000) Realized loss ($ 3,000) Recognized loss ($ –0– ) The exchange qualifies for § 1031 postponement treatment. This treatment is mandatory. p. 15-4 b. Because of the postponed loss, the basis in the new car is $19,000 ($16,000 + $3,000). Example 10 c. The exchange does not qualify for § 1031 treatment. Therefore, the realized loss of $3,000 is not recognized (loss on personal use asset) and the basis for the new car is $16,000. p. 15-4 31. a. October 8, 2009 Amount realized $500,000 Adjusted basis (350,000) Realized gain $150,000 Recognized gain $ –0– The transaction qualifies as a like-kind exchange. Tex’s basis for the land received is $350,000 ($500,000 – $150,000). February 15, 2010 Amount realized $600,000 Adjusted basis (350,000) Realized gain $250,000 Recognized gain $250,000 The sale of the land by Tex results in the previously postponed realized gain of $150,000 being recognized. The subsequent appreciation of $100,000 also is recognized.
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b. October 8, 2009 Amount realized $500,000 Adjusted basis (350,000) Realized gain $150,000 Recognized gain $ –0– The transaction qualifies as a like-kind exchange. Tex’s basis for the land received is $350,000 ($500,000 – $150,000). February 15, 2010 Only Porchia is involved in the sales transaction on February 15, 2010. However, as Tex and Porchia are related parties, neither party must dispose of the like-kind property involved for two years. Since Porchia sold her land prior to the expiration of the two-year period, Tex’s postponed gain of $150,000 on the October 8, 2009, exchange is recognized on February 15, 2010. As a result, Tex’s adjusted basis for his land is increased to $500,000 ($350,000 adjusted basis + $150,000 recognized gain). c. Hoffman, Smith, and Willis, CPAs 5191 Natorp Boulevard Mason, OH 45040 November 3, 2009 Mr. Tex Watson The Corral El Paso, TX 79968 Dear Mr. Watson: This letter is in response to your request regarding the tax consequences of the October 8, 2009, land exchange with Porchia. Based on the data provided, your tax consequences are as follows: Amount realized $500,000 Adjusted basis (350,000) Realized gain $150,000 Recognized gain $ –0– Since the transaction qualifies for nontaxable exchange treatment of like-kind property, your potential gain of $150,000 is postponed. The adjusted basis for the land you received is $350,000 ($500,000 fair market value – $150,000 postponed gain). Section 1031 of the
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This note was uploaded on 02/19/2010 for the course ACC 3300 taught by Professor Lae during the Spring '10 term at Alabama A&M University.

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ACC_4301_Solutions_t - PROBLEMS 29 a Amount realized Adjusted basis Realized loss Recognized loss $210,000(250,000($ 40,000($ 0 Presuming both

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