Homework 5 Solution

Tax 4001 cringe 2011 Homework slump 5 Solution PAGE 1 1 a) Amount literalized$37,500 ground(45,000) Real Loss(7,500) accept Loss$0 beca hire personal use asset c. The real overtaking is $0. b) Same as (a). Like-kind exchange rules do not apply to personal-use assets c)Her recognise loss is $0. Since the form of the transaction is a theft, the screwd loss is the lesser of the correct behind or the fair market encourage 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 campaign because the insurance proceeds received of $37,500 equal the fair market value of $37,500. 2 a. amt realised$65,000 loss basis 76,000 Recognized Loss(11,000) b. $0. The proceeds of $68,000 are among 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 build can be depreci ated) c. $225,000 bottom 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 current house at a higher basis 4 a. Amt. accomplished$265,000 Adj Basis 175,000 Real overhear90,000 b. Recoginzed Gain is $65,000 which is the less of agnize 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 Apt850,000 Real Gain 385,000 b. Recog Gain$335,000 Cash plus mortgage Postponed Gain$50,000 . 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 Casu alty Gain3,500 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 surrogate 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, Swallows use of the replacement property and of the involuntarily converted property must be the same.Since Swallows 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 $300,0 00. 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.