Multiple Choice Questions
1. For an exchange to qualify as a nontaxable exchange, what criteria must be present?
a. There must be an exchange.
b. The property transferred and received must be held for use in a trade or business or for investment.
c. The property exchanged must be like-kind.
d. All of these must be present.
2. For the asset received in a like-kind exchange, how is the holding period of the new asset determined?
a. According to the date the new asset is received.
b. According to the date the old asset is given away.
c. According to the holding period of the old asset.
d. None of the above applies.
3. Which of the following exchanges qualifies as like-kind property?
a. Partnership interest for partnership interest.
b. Inventory for equipment.
c. Investment land for an apartment building.
d. Business- use delivery truck for business-use van.
4. Eric exchanged equipment used in his land-clearing business with Geoff for upgraded equipment. Eric exchanged the equipment with a $75,000 FMV and $45,000 basis along with $15,000 cash. Geoff’s basis in his equipment is $60,000, and the FMV is $90,000. Which of the following statements is correct?
a. Geoff must recognize a gain of$15,000 on the exchange.
b. Geoff must recognize a gain of $5,000 on the exchange.
c. Neither Eric nor Geoff must recognize a gain.
d. Eric must recognize a gain of $15,000 on the exchange.
5. Ava exchanges a machine used in her business with Gail for another machine. The basis of Ava’s old machine is $50,000, the FMV is $66,000, and she gives Gail cash of $14,000. Gail’s basis in her machine is $70,000, and the FMV is $80,000. What is Ava’s adjusted basis in the new machine she receives?
a. $50,000.
b. $64,000.
c. $66,000.
d. $80,000.
6. Janel exchanges a building she uses in her rental business for a building owned by Russel that she will use in her rental business. The adjusted basis of Janel’s building is $160,000, and the fair market value is $250,000. The adjusted basis of Russel’s building is $80,000, and the fair market value is $250,000. Which of the following statements is correct?
a. Janel’s recognized gain is $0, and her basis for the building received is $160,000.
b. Janel’s recognized gain is $90,000, and her basis for the building received is $160,000.
c. Janel’s recognized gain is $0, and her basis for the building received is $250,000.
d. Janel’s recognized gain is $90,000, and her basis for the building received is $250,000.
7. Jason exchanged office furniture (seven-year life) for other furniture (seven-year life). The old furniture had an adjusted basis of $14,000, and the new furniture had a FMV of $22,000. Jason also paid $5,000 cash in the exchange. What are the recognized gain or loss and the basis of the furniture?
a. $0 and $14,000
b. $0 and $19,000
c. $6,000 and $14,000
d. ($8,000) and $9,000
8. Gretel exchanges a warehouse with an adjusted basis of $150,000 and fair market value of $160,000 for a mini-storage building with a fair market value of $100,000 and $60,000 cash. What are the recognized gain or loss and the basis of the mini-storage building?
a. $0 gain and $150,000 basis.
b. $10,000 gain and $100,000 basis.
c. $10,000 gain and $150,000 basis.
d. ($10,000) loss and $160,000 basis.
9. What tax form is completed to elect deferral of gain on an involuntary conversion?
a. No form is required.
b. Form 4797.
c. Form 4562.
d. Form 1040, Schedule D.
10. In order to build a new road, the city of Oxford annexed 20 acres of Michael’s farmland with a FMV of $30,000 and basis of $18,000. In return, Michael received 50 acres of similar land, which was appraised at $45,000. In this involuntary conversion, what gain or loss should Michael recognize, and what is his basis in the new land?
a. $0 gain and $18,000 basis.
b. $0 gain and $27,000 basis.
c. $12,000 gain and $30,000 basis.
d. $27,000 gain and $45,000 basis.
11. A warehouse with an adjusted basis of $125,000 was destroyed by a tornado on April 15, 2014. On June 15, 2014, the insurance company paid the owner $195,000. The owner reinvested $170,000 in another warehouse. What is the basis of the new warehouse if non-recognition of gain from an involuntary conversion is elected?
a. $100,000.
b. $125,000.
c. $170,000.
d. $195,000.