Tax 4001: Homework Set 5 Solution

Tax 4001
Spring 2011
Homework Set #5 Solution
PAGE 1

# 1 a) Amount Realized $37,500 Basis (45,000) Real Loss (7,500)

Recognized Loss $0 because personal use asset

c. The real loss is $0.
b) Same as (a). Like-kind exchange rules do not apply to personal-use assets

c)Her recognized loss is $0. Since the form of the transaction is a theft, the recognized loss is the lesser of the 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 $65,000
Recog Gain $335,000 Cash plus mortgage Postponed Gain $50,000

c. | | 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 Casualty Gain 3,500 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.
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

$ 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, Swallow's use of the replacement property and of the involuntarily