Taxes: Transactions in Property:) S - C S - S S o y S y S - S" e S A A A S G S. X S, A

516 MODULE 34 TAXES: TRANSACTIONS IN PROPERTY
months of date of death, Lois' basis is the $9,000 FMV of 18. (d) The requirement is to determine which exchange
the stock on date of distribution (5/1/09). qualifies for nonrecognition of gain or loss as a like-kind
exchange. The exchange of business or investment property
13. (d) The requirement is to determine how Lois solely for like-kind business or investment property is
should treat the shares of Elin stock. The stock should be treated as a nontaxable exchange. Like-kind means "the
treated as a capital asset held long-term since (1) property same class of property." Real property must be exchanged
acquired from a decedent is considered to be held for more· for real property, and personal property must be exchanged
than twelve months regardless of its actual holding period, for personal property. Here, the exchange of rental real es-
and (2) the stock is an investment asset in Lois' hands. The tate is an exchange of like-kind property, even though the
stock is not a Sec. 1231 asset because it was not held for use real estate is located in different states. The like-kind ex-
in Lois' trade or business. change provisions do not apply to exchanges of stocks,
bonds, notes, convertible securities; the exchange of partner-
A.1.e. Stock Received as a Dividend
ship interests, and property held for personal use.
14. (b) The requirement is to determine the basis for the
19. (d) The requirement is to determine the reportable
common stock and the preferred stock after the receipt of a
gain resulting from the exchange of an apartment building
nontaxable preferred stock dividend. Joan's original com-
for an office building. No gain or loss is recognized on the
mon stock basis must be allocated between the common
exchange of business or investment property for property of
stock and the preferred stock according to their relative fair
a like-kind. The term "like-kind" means the same class of
market value.
property (i.e., real estate must be exchanged for real estate,
Common stock (FMV) $450 personal property exchanged for personal property). Thus,
Preferred stock CFMV) 150
the exchange of an apartment building for an office building
Total value $600
qualifies as a like-kind exchange. Since no boot (money or
The ratio of the common stock to total value is $450/$600 or unlike property) was received, the realized gain of $600,000
3/4. This ratio multiplied by the original common stock - $200,000 = $400,000 is not recognized.
basis of $300 results in a basis for the common stock of
$225. The basis of the preferred stock would be ($150/$600 20. (d) The requirement is to determine the amount of
x $300) = $75. recognized gain resulting. from a like-kind exchange of in-
vestment.property. In a like-kind exchange, gain is recog-
15. (a) The requirement'is to determine the holding nized to the extent of the lesser of (]I) "boot" received, or
period for preferred stock that was received in a nontaxable (2) gain realized.
distribution on common stock. Since the tax basis of the
preferred stock is determined in part by the basis of the $ 250,000
FMV of property received
common stock, the holding period of the preferred stock Cash received 30,000
includes the holding period of the common stock (i.e., the Mortgage assumed 1Q,QQQ
holding period of the common stock tacks on to the pre- Amount realized $ 350,000
Basis of property exchanged 060.000)
ferred stock). Thus, the holding period of the preferred
stock starts when the common stock was acquired, January
Since the "boot" received includes both the cash and the
2009.
assumption of the mortgage, gain is recognized to the extent
16. (c) The requirement is to determine the amount of of the $100,000 of "boot" received.
long-term capital gain to be reported on the sale of fifty 21. (b) The requirement is to determine the amount of
shares of stock received as a nontaxable stock dividend. gain recognized to Anderson on the like-kind exchange of
After the stock dividend, the basis of each share would be apartment buildings. Anderson's realized gain is computed
determined as follows: as follows:
Gain realized
$.l.2Q,QQQ
Since the holding period of the new shares includes the + 50 = $180 FMV
holding period of the old shares, the sale of the fifty new per share of
shares for $11,000 results in a LTCG of $2,000 [$11,000- buildin
g
(50 shares x $180)].
receive
A.4.a. Like-Kind Exchange
Since the boot received in the form of cash cannot be offset
17. (c) The requirement is to determine Gow's recog- against boot given in the form of an assumption of a mort-
nized gain and basis for the investment real estate acquired gage, the realized gain is recognized to the extent of the
in a like-kind exchange. In a like-kind exchange of property $25,000 cash received.
held for investment, a realized gain ($15,000 in this case)
will be recognized only to the extent of unlike property (i.e., 22. (c) The requirement is to determine the basis of a
boot) received. Here the unlike property consists of the new truck acquired in a like-kind exchange. The basis of the
$2,000 cash and $3,000 FMV of the sailboat received, re- new truck is the book value (i.e., adjusted basis) of the old
sulting in the recognition of $5,000 of gain. The basis of the truck of $4,000 plus the additional cash paid of $19,000 (i.e.,
acquired like-kind property reflects the deferred gain result- the list price of the new truck of $25,000 less the trade-in
ing from the like-kind exchange, and is equal to the basis of allowance of $6,000).
the property transferred ($25,000), increased by the amount
of gain recognized ($5,000), and decreased by the amount of d
boot received ($2,000 +$3,000), or $25,000. Mortga
ge on
old
$90,000 450
building Mortgage on new $375,000
building $550,000
Cash received 125000
Amount realized Realized gain
Less: 100,000
Basis of old building 25000
$675,000

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516 MODULE 34 TAXES: TRANSACTIONS IN PROPERTY

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