Ch 12 HW Solutions

Ch 12 HW Solutions - Selected Chapter 12 Homework Solutions...

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Selected Chapter 12 Homework Solutions 19. Which of the following transfers meet the exchange requirement for deferral under like-kind exchange provisions? To qualify for nonrecognition, a direct exchange of like-kind property must occur. Thus, a sale of property and a purchase of like-kind property from another would not be considered an exchange, unless the two transactions are interdependent. If the sale and purchase transactions are interdependent, the transactions are treated as an exchange under the substance-over-form doctrine. a. Bonita sells her rental condominium in Park City and uses the proceeds as a down payment to buy a rental condominium in Breckenridge. Both properties have an investment purpose, and they are both properties of the same class (real property). However, the sale and subsequent purchase are not interdependent (i.e., no direct exchange of property). Bonita could have taken the proceeds from the sale and used it in any way. She has the wherewithal to pay. The only way Bonita's transaction could have been an exchange is if a third party was involved to hold Bonita's funds and help locate the property for the exchange (deferred or 3 rd party exchange). b. Enrique Corporation sells its old pasta machine to Angelo Distributing Company and after shopping around for a few days, purchases a new Angelo Model 5 Pasta Machine from Angelo Distributing Company. The pasta machines are like-kind properties used in a trade or business. However, a direct exchange exists. Enrique's sale and purchase were with the same dealer. The transactions are collapsed into one and treated as a direct exchange of pasta machines. The substance of the transaction is an exchange between Enrique and Angelo Distributing Co. c. Habit Partnership trades 3 of its delivery vans to Cal's Cars and Trucks for 2 new delivery vans. The vans are like-kind properties used in a trade or business. A direct exchange of vans occurred. A continuation of investment exists. The number of vans exchanged does not change the substance of the transaction.
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d. Louise owns an apartment building in Milwaukee, which Rebecca offers to purchase. Louise is willing to part with the property but does not want to recognize the substantial gain on the sale. She is willing to exchange the apartment for a lakefront resort lodge in Minnesota. Rebecca finds such a property and buys it from Ole. Then Rebecca exchanges the lodge for Louise's apartment building. Louise and Rebecca exchange like-kind property (real estate) held as an investment or used in a trade or business. Their exchange qualifies for like-kind exchange deferral treatment. The sale and purchase between Rebecca and Ole does not qualify as a like-kind exchange.
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Ch 12 HW Solutions - Selected Chapter 12 Homework Solutions...

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