Tax Implications of Property Disposal and Exchange

Basis Property Acquired as Gift

If donor ABFMV, then dual basis applies (1 gain basis & 1 loss basis). Where GB=DonorAB & LB=FMV prop. If sellpr>DonorAB D1EAB=DonorAB @ date of gift. If sellpr,

Scott has decided to dispose of these assets that he received as a gift. Compute his realized & recognized g/l on these disposals: a. In 2000, he received stock with a FMV of 88k. The donor’s AB was 100k. He sells the stock for 72k this year. Gain basis=100k Loss basis=88k Amtreal=72k-Lossbasis88k=(12k) RecogL.

In 2001, he received land with FMV of 42k. The donor’s AB was 50k. He sells the land this year for 45k. Since sellpr b/w AB & FMV. No g/l permitted.

Nicky receives a car from Sam as a gift. Sam paid 48k for the car. He had used it for business purposes & had deducted 10k for depr. up to the time he gave the car to Nicky. The FMV car is 33k.

1. Assuming that Nicky uses the car for business purposes, what is her basis for depr?

Basis for depr. is D1E GB 38k(48cost-10accudepr.) LB=FMV 33k

1. Assume that Nicky deducts depr. of 6.5k & then sells the car for 32.5k. What is her recog g/l? Amtreal=32.5k-Adjbasis31.5k(GB** of 38k-6.5k)=1k Real & RecogL
2. Assume that Nicky deducts depr. of 6.5k & then sells the car for 20k. What is her recog g/l? Amtreal=20k-Adjbasis26.5k(LB** 33k- 6.5k)=6.5k Real & RecogL

Disallowed Losses (RP/Personal Use Asset)

Jenn owns a personal-use car that has a FMV 17k & AB 20k. Jen’s AGI is 80k. Calc the real & recog if:

Jenn sells the car for 17k 3k Real not Recog. (Loss disallowed on personal use)

Jenn exchanges the car for another car worth 17k Real=3k.Recog0 (not L-K b/c personal use)

Lisa sells business property with an AB of 140k. Her son, Alfred, for its FMV 100k.

What is Lisa's real & recog g/l? Lisa’s Real of 40k not Recog (disallowed)///What is Alfred's recog g/l if he subsequently sells the property for 155k? 4 85k? RecogG 55k & RecogL 15k EZ

Sheila sells land to E, her sister, for FMV of 40k. 6 months later when the land is worth 45k, E gives it to Joe, her son. (No gift tax) Shortly thereafter, Joe sells the land for 48k.

Assuming that Sheila's AB for the land is 24k, what R Sheila's & Jacob's recog g/l on the sales?S: Amtreal40k-24Adjbasis=16RealG=16kRecogG///J: Amtreal48k-40Adjbasis(b/c DonorAB)=8kRealG>

Assuming that Sheila's adjusted basis for the land is $60,000, what R Sheila's & Jacob's recognized gain or loss on the sales? S: Amtreal40-60Adjbasis=20kRealL=0RecogL (disallowed RP) J: Amtreal48k-40kAdjbasis=8kRealG=8kRecogG (cant offset S's 20kdisallowed loss b/c not original transferee)

Involuntary Conversion

Jenn owns a personal-use car that has a FMV of 17k & an AB of 20k. Jennifer’s AGI is 80k. Calc the realized & recognized loss if:

.The car is stolen & she receives $17,000 in insurance proceeds: AB 17**-17(ins.proceed)=0 allowed loss.**lesser of AB or decline in FMV

Thomas’s automobile, AB of 12k is used exclusively for business & is damaged in an accident. The FMV before the accident is 18k & the FMV after is just $950. If the insurance recovery is 16k, what is Thomas’s AB after the casualty? What is his casualty gain, if any?

Insproceeds 16k-12k(basisb4crash)=4k Casualty gain basis after ins=0. Nothing left to recover.

1. Edith's warehouse AB of 450k is destroyed by a hurricane in Oct 2017. Edith, a calendar yr taxpayer, receives ins.proceeds of 525k in Jan 2018. Calc Edith's realg/l, recog l, & basis for the replacement prop. If she:

Acquires a new warehouse for 550k in Jan 2018. Amtreal 525k-AB 450k=75kRealG/// Since all insproceeds reinvested on qualifying prop. S1033invconv. In affect. 75k gain postp1d. Recog zero///Basis is 475k(550-75kpostp1dg)///Acquires a new warehouse for 500k in Jan 2018. 525-450=75kRealG///Amtreal525-reinvestment500k=25kRecogGain/// Basis is 450k(500k-50kpostp1dg)

Does not acquire replacement prop 525-450=75kRealG/// Recog75k b/c n1 reinvested.

Sale of Residence

Constanza, who is single, sells her current personal residence (AB 195k) for 546k. She has owned & lived in the house for 30 yrs. Her selling exps R 27.3k. RealG?RecogG? Amtreal518.7k(546k-27.3k)-AB195k=323.7kRealG///-Exclusion of 250k(standard)=73,700 RecogGain

Basis Prop Converted Personal Use>>Business

Arianna's personal residence has an AB of 240k & a FMV of $200k. Arianna converts the personal residence to rental prop. What is Arianna's gain basis? What is her loss basis?Arianna's basis for gain is 240,000 & her basis for loss is $200k

Jessica’s personal residence originally cost 225k, 25k of that cost was allocated to the land. After living in the house for 7 yrs, she converts it to rental prop. @ the date of conversion, the FMV of the house & land was 345k. As to the rental property, calculate her basis:

Could she have obtained better tax results if she had sold her personal residence for $345k and then buy another house for $345k to hold as rental property?

Personalresi cost 225k. Alloc. 2 land 25k. FMV 345k. Basis for loss 225k(lesser of AB & FMV) Depr. basis=200k.(Land not depr.)

L-K Exchange

Miller company owns undeveloped land (basis of $225k) that it exchanges for 50k cash & an office building (FMV $280k) to be used in the business.Basisland225k, cashboot50k, FMX building 280k

a. What is Miller’s RealG/L?Amtreal(cash+FMVpropM rcv-d)-225kAdjbasis=105kRealG

b. Its recognized gain or loss?Lesser of RealG105k Bootrcvd50k=50kRecogG

c. Its basis in the office building?AB exchangedland 225k+50kRecogG-50kBootrcvd)=225k AB building

Realty co. owns an apt building that has an AB of 740k, but is subject to a mortgage of 230k. Dondee transfers the apt building to Bod, Inc. & rcvs from Broadview 210k in cash & a building with a FMV of 1mill @ the time of the exchange. Broadview assumes the 230kmortgage on the apt building.Basisapexchanged740k, debtrelief(boot)230k, cash boot 210k, FMV building rcvd1mill

a. What is Dondee’s realized gain or loss on the apartment building?Amtreal=1.44mill(cash+FMVrcv-d+debtrelief)-basisaptexchanged740k=700kRealG

b. What is its recognized gain or loss on the apartment building?Lesser of RealG& Bootrcvd(cash+debtrelief)=440kRecogG>>260kDeferredG

c. What is the basis of the newly acquired office building?ABexchanged740k+RecogG440k-Bootrcv-d440k=740k AB building

What is the basis of the new property in each of the following exchanges?

1. Apt building held 4 investment (AB 145k 4 office building 2 be held 4 investment (FMV 225k).Postp1dg=80k>>B=(225-80)
2. Land & building used as a barbershop (AB 190k) 4 land & building used as a store (FMV 350k).PPG=160k>>B=(350-160)
3. Office building (AB of 45k) 4 bulldozer (FMV42k), both held 4 business use.Not L-K>>B=42k
4. IBM C.S.(AB of 20k) 4 ExxonMobil C.S.(FMV of 28k).Not L-K>>B=28k
5. Rental house (AB of 90k) 4 cabin held 4 rental use (FMV 225k).Not L-K>>B=225-135(PPG)=90k
6. General partnership interest (AB of 400k) 4 a limited partnership interest FMV of $580k Not L-K B=580k

CP, Inc., exchanges RE used in its business along with stock for RE 2 be held 4 investment. The stock transferred has AB=45k & a FMV of 50k. The RE transferred AB= 85k & a FMV=190k. The RE acquired FMV= 240k

What is Cardinal's realized gain or loss?RealG=110k(105(Gain L-K aka postp1dg)+5k(Gain not L-K)

Its recognized gain or loss?RecogG(on prop not L-K)

The basis of the newly acquired real estate?240-105=135 new basis

Logan & John exchange land, & the exchange qualifies as like kind under § 1031. Because Logan’s land (adjusted basis of $160k) is worth $192k & Johnathan's land has a fair market value of $152,475, Johnathan also gives Logan cash of 40k. Logan’s RecogG: Lesser of RealG32k(192k-160k)= or Boot FMV 40k