Acme Corp. stock held for investment purposes for Mesa Corp. stock also held for investment purposes.
NO. Exchange of stocks does not reflect like-kind exchange.
A motel used in a trade or business for an apartment complex held for investment.
YES. Like-kind exchange rules dealing with realty/land amore rather liberal. The only condition is for the realty/land to be for business, or income generation. In this case, the like-kind exchange applies.
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A pecan orchard in Texas used in a trade or business for an orange grove in Florida used in a trade or business.
YES. Both of the lands are under business use.
A one-third interest in a general partnership for a one-fourth interest in a limited partnership.
NO. Partner interests cannot qualify for like-kind property exchange consideration.
Inventory for equipment used in a trade or business.
NO. Inventory does not qualify for like-kind property exchange treatment.
Unimproved land held as an investment for a warehouse used in a trade or business.
YES. This is a business property that will generate income.
An automobile used as a personal-use asset for marketable securities held for investment.
NO. Personal use assets do not qualify for like-kind property exchange treatment since they do not generate any business income.
A motel in Texas for a motel in Italy
NO. Property in the United States when exchanged for property of another country is not eligible for like-kind exchange consideration.
An office building held for investment for an airplane to be used in taxpayer’s business.
NO. The two assets; the office building and airplane are not the same class of general asset. Through examination, the office building qualifies as realty while the airplane is personality.
Land held for investment for marketable securities held for investment.
NO. The two are not the same class of general assets
Land held for investment for a farm to be used in a taxpayer’s business.
YES. This land is a business property is within like-kind consideration.
Compression Problem
Betty, whose tax rate is 33%, is in the business of breeding and racing horses. Except for the transactions below, she has no other sales or exchanges and she has no unrecaptured net Sec. 1231 losses. Consider the following transactions that occur during the year:
A building with an adjusted basis of $300,000 is destroyed by fire. Insurance proceeds of $500,000 are received, but Betty does not plan to replace the building. The building was built 12 years ago at a cost of $430,000 and used to provide lodging for her employees. Straight-line depreciation has been used.
Four acres of the farm are condemned by the state to widen the highway and Betty receives $50,000. The land was inherited from her mother 15 years ago when its FMV was $15,000. Her mother purchased the land for $10,300. Betty does not plan to purchase additional land
A racehorse purchased four years ago for $200,000 was sold for $550,000. Total depreciation allowed using the straight-line method amounts to $160,000.
Equipment purchased three years ago for $200,000 is exchanged for $100,000 of IBM common stock. The adjusted basis of the equipment is $120,000. If straight-line depreciation had been used, the adjusted basis would be $152,000.
An uninsured pony with an adjusted basis of $20,000 and FMV of $35,000, which her daughter uses only for personal use, is injured while attempting a jump. Because of the injury, the uninsured pony has to be destroyed by a veterinarian. Task(s):
What amount of Sec. 1245 ordinary income must be recognized?
$160,000. Racehorse sale results in Sec. 1245 ordinary income.
What amount of Sec. 1250 ordinary income must be recognized?
Zero will be recognized
Will the loss resulting from the destruction of her daughter’s pony be used to determine net Sec. 1231 gains or losses?
No. The pony is a personal asset. It cannot be identified as a business asset.
What is the amount of the net Sec. 1231 gain or loss?
$565,000. The net Sec. 1231 gain. This is because of the following transactions:
$200,000 casualty gain - building
35,000 condemnation of land
350,000-racehorse sale after the first one
(20,000) loss on equipment exchange
After all of the netting of gains or losses is completed, will the gain resulting from the involuntary conversion of the building be treated as LTCG?
Yes. The casualty gain is netted against those of casualty losses. In Sec. 1231 property and the non-personal capital assets had over 1 year. As there are no such losses, the gain of $200,000 is combined with those of Sec. 1231 gains and losses. After all Sec. 1231 gains and losses are netted, there is a net Sec. 1231 gain of $565,000 ($585,000 - $20,000). As a result, all Sec. 1231 gains and losses should be treated as LTCG and LTCL. The
What is the amount of her unrecaptured Sec. 1250 gain?
$170,000 of the net capital gain remains unrecaptured. The tax was at 25%
I: 12-29 Like -Kind Exchange: Personal Property. Beach Corporation own a computer with a $34,000 adjusted basis. The computer is used in the company's trade or business. What is the realized and recognized gain or loss for each of the following independent transactions where the computer is exchanged for?
A used computer with a $70,000 FMV plus $16,000 cash.
Realized gain (loss) 52,000
Recognized gain (loss) 16,000
A used computer with a $18,000 FMV plus $7,000 cash.
Realized gain (loss) (9,000)
Recognized gain (loss) (0)
Marketable securities with $61,000 FMV.
Realized gain (loss) 27,000
Realized gain/loss 27,000
The transactions does not qualify as like-kind exchange
