Application Problems Firm A exchanged an old asset with a $20,000 tax basis for a new asset with a $32,000 FMV Under each of the following assumptions, apply the generic rules to compute As realized gain, recognized gain, and tax basis in the new asset (If the transaction does not involve qualified property, it would be treated like a normal sale ) a) Old asset and new asset are not qualified property for nontaxable exchange purposes b) Old asset and new asset are qualified property for nontaxable exchange purposes c) Old asset and new asset are not qualified property for nontaxable exchange purposes To equalize the values exchanged, Firm A paid $1,700 cash to the other party d) Old asset and new asset are qualified property for nontaxable exchange purposes To equalize the values exchanged, Firm A paid $1,700 cash to the other party e) Old asset and new asset are not qualified property for nontaxable exchange purposes To equalize the values exchanged, Firm A received $4,500 cash from the other party f) Old asset and new asset are qualified property for nontaxable exchange purposes To equalize the values exchanged, Firm A received $4,500 cash from the other party Firm ML, a noncorporate taxpayer, exchanged residential rental property plus $15,000 cash for 20 acres of investment land with a $200,000 FMV ML used the straight line method to compute depreciation on the residential rental property a) Assuming that Firm MLs exchange was negotiated at arms length, what is the FMV of the rental property b) If the adjusted basis of the rental property is $158,000, compute Firm MLs realized and recognized gain on the exchange c) Compute Firm MLs basis in the 20 acres of investment land In 2004, SW purchased 1,000 shares of Delta stock On May 20 of the current year, it sold these shares for $90 per share In each of the following cases, compute SWs recognized gain or loss on this sale Also, in each case in which SW purchased 1,200 Delta shares in the current year along with selling the 1000 shares, compute its tax basis in the new shares a) SWs cost basis in the 1,000 shares was $104 per share It did not purchase any other Delta shares during the current year b) SWs cost basis in the 1,000 shares was $104 per share It purchased 1,200 shares of Delta on May 1 of the current year for $92 per share and held these 1,200 shares throughout the remainder of the year c) SWs cost basis in the 1,000 shares was $104 per share It purchased 1,200 shares of Delta on June 8 of the current year for $92 per share and held these 1,200 shares throughout the remainder of the year d) SWs cost basis in the 1,000 shares was $79 per share It purchased 1,200 shares of Delta on June 8 of the current year for $92 per share and held these 1,200 shares throughout the remainder of the year

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Application Problems Firm A exchanged an old asset with a $20,000 tax basis for a new asset with a $32,000 FMV. Under each of the

Application Problems

Firm A exchanged an old asset with a $20,000 tax basis for a new asset with a $32,000 FMV. Under each of the following assumptions, apply the generic rules to compute As realized gain, recognized gain, and tax basis in the new asset. (If the transaction does not involve qualified property, it would be treated like a normal sale.)

a) Old asset and new asset are not qualified property for nontaxable exchange purposes.

b) Old asset and new asset are qualified property for nontaxable exchange purposes.

c) Old asset and new asset are not qualified property for nontaxable exchange purposes. To equalize the values exchanged, Firm A paid $1,700 cash to the other party.

d) Old asset and new asset are qualified property for nontaxable exchange purposes. To equalize the values exchanged, Firm A paid $1,700 cash to the other party.

e) Old asset and new asset are not qualified property for nontaxable exchange purposes. To equalize the values exchanged, Firm A received $4,500 cash from the other party.

f) Old asset and new asset are qualified property for nontaxable exchange purposes. To equalize the values exchanged, Firm A received $4,500 cash from the other party.

Firm ML, a noncorporate taxpayer, exchanged residential rental property plus $15,000 cash for 20 acres of investment land with a $200,000 FMV. ML used the straight-line method to compute depreciation on the residential rental property.

a) Assuming that Firm MLs exchange was negotiated at arms length, what is the FMV of the rental property?

b) If the adjusted basis of the rental property is $158,000, compute Firm MLs realized and recognized gain on the exchange.

c) Compute Firm MLs basis in the 20 acres of investment land.

In 2004, SW purchased 1,000 shares of Delta stock. On May 20 of the current year, it sold these shares for $90 per share. In each of the following cases, compute SWs recognized gain or loss on this sale. Also, in each case in which SW purchased 1,200 Delta shares in the current year along with selling the 1000 shares, compute its tax basis in the new shares.

a) SWs cost basis in the 1,000 shares was $104 per share. It did not purchase any other Delta shares during the current year.

b) SWs cost basis in the 1,000 shares was $104 per share. It purchased 1,200 shares of Delta on May 1 of the current year for $92 per share and held these 1,200 shares throughout the remainder of the year.

c) SWs cost basis in the 1,000 shares was $104 per share. It purchased 1,200 shares of Delta on June 8 of the current year for $92 per share and held these 1,200 shares throughout the remainder of the year.

d) SWs cost basis in the 1,000 shares was $79 per share. It purchased 1,200 shares of Delta on June 8 of the current year for $92 per share and held these 1,200 shares throughout the remainder of the year.