Tax Drill - Apply Section 121 Exclusion

Constanza, who is single, sells her current personal residence (adjusted basis of $165,000) for $450,000. She has owned and lived in the house for 30 years. Her selling expenses are $22,500.

Constanzas realized gain is $__________ and her recognized gain would be $___________ .

Problem 15-28 (LO. 2)

Kareem owns a pickup truck that he uses exclusively in his business. The adjusted basis is $22,000, and the fair market value is $14,000. Kareem exchanges the truck for a truck that he will use exclusively in his business.

If an amount is zero, enter "0".

a. Kareem's realized (gain or loss) is $________, and his recognized (gain or loss) is $_________.

b. Kareem's basis in the new truck is $_________

c. What are the tax consequences to Kareem if he used the old truck and will use the new truck exclusively for personal purposes? He will have a realized (gain or loss) of $_________ that (is or is not) recognized, and the basis for the new truck is $_________.

Problem 15-31 (LO. 2, 6)

In two unrelated transactions, Laura exchanges property that qualifies for like-kind exchange treatment. In the first exchange, Laura gives up office equipment purchased in May 2013 (adjusted basis of $20,000; fair market value of $17,000) in exchange for new office equipment (fair market value of $15,000) and $2,000 cash. In the second exchange, Laura receives a parking garage (to be used in her business) with a fair market value of $50,000 in exchange for a plot of land she had held for investment. The land was purchased in April 2007 for $12,000 and has a current fair market value of $48,000. In addition to transferring the land, Laura pays an additional $2,000 to the other party.

Note: If an amount is zero, enter "0".

a. Laura's recognized gain or loss is $_______ and her adjusted basis for the new office equipment is $________.

b. When does the holding period begin? Select: (May 2013 or The date that the exchange took)

c. Laura's recognized gain or loss is $________ and her adjusted basis for the parking garage is $________.

d. When does the holding period begin? Select: (The date on which the land was purchased. Or The date the parking garage was acquired in the exchange)

e. In order to produce better tax consequences, Laura could sell the office equipment to one party and purchase the new office equipment from Selecta: (different party or the same party), thus allowing her to Select: (realize or recognize) the loss of $________.

Problem 15-33 (LO. 2)

Stephanie owns a machine (adjusted basis of $90,000; fair market value of $125,000) that she uses in her business. She exchanges it for another machine (worth $100,000) and stock (worth $25,000).

a. Stephanie's realized gain is $ and recognized gain is $________.

b. The basis of the new machine is $________.

c. The basis in the stock she received is $__________.

Problem 15-37 (LO. 2)

Tab exchanges real estate used in his business along with stock for real estate to be held for investment. The stock transferred has an adjusted basis of $45,000 and a fair market value of $50,000. The real estate transferred has an adjusted basis of $85,000 and a fair market value of $190,000. The real estate acquired has a fair market value of $240,000.

a. Tab's realized Select: (gain or loss) is $_______.

b. His recognized Select: (gain or loss) is $________.

c. The basis of the newly acquired real estate is $_________.

Problem 15-49 (LO. 4, 6)

Karl purchased his residence on January 2, 2014, for $260,000, after having lived in it during 2013 as a tenant under a lease with an option to buy clause. On August 1, 2015, Karl sells the residence for $315,000. On June 13, 2015, Karl purchases a new residence for $367,000.

Note: If an amount is zero, enter "0".

a. Karl's recognized gain is $_______, and his basis for the new residence is $_________.

b. Assume that Karl purchased his original residence on January 2, 2013 (rather than January 2, 2014). Karl's recognized gain is $________, and his basis for the new residence is $__________.

c. To minimize his recognized gain, he can use the Select: ( 121 1031 1033) exclusion to Select: (increase or reduce) of Item 3 his realized gain of $_________ to $_________.