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Unformatted text preview: Tax 4001 Fall 2010 Homework Set #5 Solution PAGE 1 # 1 a) Amount Realized Basis Real Loss Recognized Loss $37,500 (45,000) (7,500) $0 because personal use asset b) Same as (a). Like-kind exchange rules do not apply to personal-use assets c)Her recognized loss is $0. Since the$0. of the transaction is a theft, the recognized loss is the lesser of the c. The real loss is form 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 "loss" basis Recognized Loss b. $65,000 76,000 (11,000) $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. c. d. $200,000 (note: only the building can be depreciated) $225,000 Basis for the gain is adjusted basis 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 Fall 2010 Homework Set #5 Solution PAGE 2 . #5 Amt. Realized Less: Basis of Apt Real Gain b. Recog Gain Postponed Gain c. Basis of Apt Bldg + gain recognized Less: Boot received Basis of Office Bldg $1,235,000 [125000 + 900000 + 210000] 850,000 385,000 $335,000 Cash plus mortgage $50,000 $850,000 335,000 (335,000) $850,000 #6 Cost Legal Fees Streets and Sewers Basis #7 Basis b4 casualty b4 casualty Insurance proceeds Casualty Gain Basis after insurance $200,000 $21,500 $700,000 $921,500 $10,000 13,500 3,500 - #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) = $ Sales Procceds Less: Basis LTCG 60 per share 6,000 Basis of Shares Sold 18,000 (6,000) 12,000 $ Tax 4001 Fall 2010 Homework Set #5 Solution PAGE 3 30. 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). 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). 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). 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). 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). 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). b. c. d. e. f. Tax 4001 Fall 2010 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 Recognized gain The basis for the replacement property is: Cost Postponed gain Basis $ 700,000 (230,000) $ 470,000 $ 700,000 (470,000) $ 230,000 $ –0– 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 The basis for the replacement property is: Cost Postponed gain Basis $ 400,000 (100,000) $ 300,000 $ 400,000 (300,000) $ 100,000 $ –0– 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 The basis for the apartment building is its cost of $300,000. $ 300,000 (250,000) $ 50,000 $ 50,000 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. ...
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This note was uploaded on 12/07/2010 for the course ACG 3361, 4401 taught by Professor Goldwater,canada,judd,byrd,theniel during the Spring '10 term at University of Central Florida.
- Spring '10