Question

1. Bob owned a duplex used as rental property. The duplex had an adjusted basis to Bob of $86,000 and a fair market value of $300,000. Bob transferred the duplex to his brother, Carl, in exchange for a triplex that Carl owned. The triplex had an adjusted basis to Carl of $279,000 and a fair market value of $300,000. Two months after the exchange, Carl sold the duplex to his business associate to whom he was not related for $312,000. How much, if any, gain or loss did Carl recognize with respect to the sale by Carl to his business associate?  EXPLAIN WHY AND WHICH CODE SEC BASES YOUR ANSWER?

a. No gain or loss was recognized.

b. $11,000 gain was recognized.

c. $12,000 gain was recognized.

d. None of the above is correct.

2.   Assume the same facts as in problem 1, except that Carl sold the duplex to the business associate two years after the exchange with Bob. Without taking into consideration any changes to the adjusted basis of the property subsequent to the exchange with Bob (such as for depreciation), how much, if any, gain or loss did Bob recognize with respect to the exchange with Carl?  EXPLAIN WHY AND WHICH CODE SEC BASES YOUR ANSWER?

a.   No gain or loss was recognized.

b.   $11,000 gain was recognized.

c.   $214,000 gain was recognized.

d.   The transfer by Bob to Carl is a gift.

e.    $21,000

3. Under the facts of question 1, what is Bob’s basis in the triplex?  EXPLAIN WHY AND WHICH CODE SEC BASES YOUR ANSWER?

a. $86,000

b. $279,000

c. $300,000

d. $312,000

4.   Assume the same facts as in problem 1, except that Carl sold the duplex to his business associate three years after the exchange with Bob. Without taking into consideration any changes to the adjusted basis of the property subsequent to the exchange with Bob (such as for depreciation), how much, if any, is Carl’s recognized gain with respect to these transactions?  EXPLAIN WHY AND WHICH CODE SEC BASES YOUR ANSWER?

a. No gain or loss on the exchange with Bob, and $12,000 gain on the subsequent sale

b. $11,000 gain on the exchange with Bob, and $12,000 gain on the subsequent sale

c. $12,000 gain on the exchange with Bob, and $279,000 on the subsequent sale

d. None of the above is correct.

please answer all

Answer 1

Part 1

Option C

c. $12,000 gain was recognized

sale price – adjusted basis = ($312,000 -$300,000 = 12000)

According to section 1031, the exchange does not qualify as like kind exchange as it was made with a related party and the property was disposed of by the buyer within 2 years after the exchange.

Part 2

Option C

c.   $214,000 gain was recognized.

sale price – adjusted basis = ($300,000 - $86,000) = $214000

According to section 1031, the exchange does not qualify as like kind exchange as it was made with a related party and the property was disposed of by the buyer within 2 years after the exchange.

Part 3

Option A

a. $86,000

Part4

Option A

a. No gain or loss on the exchange with Bob, and $12,000 gain on the subsequent sale

According to section 1031, the exchange qualifies as like-kind exchange as the exchange of property from Bob to Carl, is the exchange made with a related party and the property was disposed of by the buyer after holding property for at least two years after the exchange. Thus, no gain or loss on the exchange with Bob will be recognized.