Question: How is the tax treatment of a

> Explain the lookback rule as it applies to the Section 1231 netting procedure.

> Pauline's Pastry Shop decides to remodel its offices this year. As part of the remodeling, Pauline's trades furniture with a cost of $12,000 that had been expensed in the year of purchase (Section 179 expense election) for new furniture costing $22,000.

> Jalapeno Company trades in its old delivery van for a new delivery van. The old van cost $22,000 and has an adjusted basis of $15,000. Jalapeno is given a $13,000 trade-in allowance on the new van and pays the remaining $14,000 of the $27,000 purchase

> Return to the facts of problem 22. Assume that Mayfair Corporation exchanges its machine for another machine worth $18,000. a. How much boot must be paid to make the exchange, and who must pay the boot? b. Does the corporation have a recognized gain

> Mayfair Corporation exchanges a machine with a fair market value of $15,000 and an adjusted basis of $10,000 for land in Nevada with a fair market value $15,000. Does Mayfair have a recognized gain on the exchange? Explain.

> Which of the following exchanges of property are like-kind exchanges? a. Horace trades his personal use auto for another personal use auto. b. Lian trades an office building she rents out for a warehouse to use in her business. c. Arthur owns a hardware

> Which of the following exchanges of property are like-kind exchanges? a. Land traded for an airplane. b. A warehouse used in a trade or business exchanged for land to be used as a personal residence. c. Land in Greece held as an investment for a hotel in

> Which of the following transfers meet the exchange requirement for deferral under like-kind exchange provisions? a. Bonita sells her rental condominium in Park City and uses the proceeds as a down payment to buy a rental condominium in Breckenridge. b. E

> Honre Corporation's warehouse and Filip Company's office building were located side by side until a fire raced through both structures, completely destroying them. The warehouse has an adjusted basis of $250,000 and a fair market value (FMV) before the

> Gary and Gertrude are married on April 8, 2016. They use Gertrude’s home as their residence. Gertrude purchased the home on November 14, 2014, for $60,000. On February 19, 2017, Gertrude is killed in an automobile accident. Gary is distraught and sel

> Kerri and John are married. On May 12, 2017, they sell their home for $190,000 and purchase another residence costing $225,000. What is Kerri and John’s realized and recognized gain in each of the following cases? a. They purchased the residence for $85

> One primary problem in properly accounting for property dispositions is differentiating capital assets and Section 1231 property. Why is it important to correctly identify as either a capital asset or a Section 1231 property an asset that has been dispo

> Manuel and Rita sell their home in Minneapolis for $495,000, incurring selling expenses of $25,000. They had purchased the residence for $85,000 and made capital improvements totaling $20,000 during the 20 years they lived there. They buy a new residenc

> Mai, a single taxpayer, sells her residence in the suburbs for $300,000. She bought the house twelve years ago for $60,000 and made $30,000 of improvements to it. Mai buys a new downtown condominium for $155,000 a few weeks after she sells her suburban

> Aretha sells her house on June 9, 2017, for $220,000 and pays commissions of $10,000 on the sale. She had purchased the house for $60,000 and made capital improvements costing $15,000. What are Aretha’s realized and recognized gain in each of the follow

> In each of the following cases, determine the amount of realized gain or loss and the recognized gain or loss: a. Cheryl sells her house for $73,000 and she pays $4,000 in commissions on the sale. She paid $83,000 for the house 4 years earlier. b. In

> Alley's automobile dealership, which has an adjusted basis of $400,000, is destroyed by a hurricane in the current year. Alley's receives $600,000 from its insurance company to cover the loss. Alley's has begun to rebuild the dealership at an estimated

> MacKenzie owns a boat rental business. During the current year, a tidal wave sweeps through the harbor where she keeps her boats anchored. Four boats are totally destroyed, but the rest of the rental fleet escapes serious damage. MacKenzie replaces the

> A fire totally destroys a manufacturing plant owned by Ansel Corporation. The plant, located in Louisiana, has been used for more than 30 years and is fully depreciated. Ansel's insurance pays $500,000 for the destruction. In analyzing qualified replac

> One of Reddy's Fancy Dog Food factories is destroyed by a tornado. The factory has an adjusted basis of $375,000. Reddy's receives $540,000 from its insurance company to cover the loss. What is the minimum amount of gain that must be recognized in eac

> Refer to the facts of problem 44. Write a letter to Grant Industries explaining why it might want to recognize the entire gain on the condemnation. Data from Problem 44: Grant Industries' warehouse is condemned by the city on August 18, 2017. Because

> Grant Industries' warehouse is condemned by the city on August 18, 2017. Because of widespread publicity leading up to the condemnation, Grant anticipates it and purchases a replacement warehouse on April 15, 2017, for $670,000. The city pays Grant $43

> What is the tax advantage of selling a Section 1231 property at a gain?

> Which of the following are qualified replacement properties for properties involuntarily converted? Explain. a. The city of Marble River announces plans to condemn Heima's rental apartment complex on July 2, 2017. On August 7, 2017, Heima purchases a w

> Which of the following are qualified replacement properties for properties involuntarily converted? Explain. a. The insurance proceeds from a warehouse destroyed by a fire are used to purchase a manufacturing plant. The warehouse and the plant are both

> Walker Corporation acquires a business automobile with a fair market value of $20,000 by trading in an old automobile and giving $14,000. Walker paid $12,000 for the old automobile, which has an adjusted basis of $1,000 at the date of the trade. Two yea

> On July 8, 2017, Cynthia and her daughter Constance agree to exchange land they held for investment. Both tracts are worth $18,000. Cynthia acquired her land 4 years earlier for $9,000. Constance paid $16,000 for her land the previous year. a. What

> Oscar and Harriet agree to exchange apartment buildings and the mortgages on the buildings, with any difference in value to be paid in cash. Particulars of their respective buildings are as follows: a. How much cash must be paid, and who must pay the ca

> Lorraine is an avid baseball card collector. She gives a card dealer $50 and a Roger Maris card for a Sammy Sosa card. Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue that you identify.

> Johann exchanges an apartment building for an office building worth $100,000. The apartment building has an adjusted basis of $80,000 and is encumbered by a $30,000 mortgage, which the owner of the office building assumes in the exchange. Identify the t

> Rollie exchanges a parking lot used in his business for a tract of land worth $20,000 and $4,000 in cash. He plans to subdivide and sell the land as residential lots. The adjusted basis of the parking lot is $30,000. Identify the tax issue(s) posed by t

> Erica owns A-1 Landscaping Services. She trades a lawn tractor with a basis of $200 for a powered post hole digger worth $300. Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue that you identi

> Bonnie wants to trade her Snow Bird, Utah, condominium, which she has held for investment, for investment property in Steamboat Springs or Crested Butte, Colo. On April 20, 2017, she transfers title to the Snow Bird property to Thanh/Hao Partnership, wh

> What is Section 1231 property?

> Orley, Goutam, and Serena each own undivided one-third interests as tenants in common in three parcels of land held as an investment. One of the parcels is mortgaged for $60,000, for which each is personally liable. They would like to rearrange their i

> Will owns residential rental property that is destroyed by a tornado in March 2016. He files a claim with his insurance company and receives $90,000 for the property. The building is fully depreciated, and the adjusted basis of the land is $3,000. The

> Taxpayers can structure transactions through third parties that qualify as like-kind exchanges if certain time requirements for identifying the properties and closing the transaction are met. This type of exchange is referred to as a deferred or third-pa

> The Internal Revenue Service provides information on a variety of tax issues in its publication series. These publications can be found on the IRS world wide web site (http://www.irs.gov/). Go to the IRS world wide web site and find any publications th

> Othello trades a concrete ready mix truck and a general purpose truck used in his landscape business to Sonja for an ore truck and a general purpose truck and $1,000 cash. The adjusted basis and fair market value of the animals traded are as follows: Re

> Eva and Mario are married on June 14, 2016. They use Eva’s home as their principal residence. Eva purchased the home for $97,000 in 2013. On January 13, 2017, Eva and Mario are divorced. As part of the settlement, Mario receives the home. He sells i

> Harvey sells his personal residence on March 18, 2017, for $78,000. He paid $86,000 for it on April 22, 2015. Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue that you identify.

> Laurie bought a home in 2014 for $65,000. On November 2, 2017, she sells it for $114,000. Laurie uses the proceeds to purchase a duplex costing $200,000. She uses one unit in the duplex as her principal residence. Identify the tax issue(s) posed by th

> Inez is a freelance artist. She purchased 10 acres of land in 2012 for $5,000. On July 15, 2017, the land is condemned by the county government to build a new courthouse and jail facility. The county awards Inez $35,000 for the condemnation of the lan

> Raylene’s personal automobile is destroyed by a tornado. Her insurance company paid her $5,000, which she used to purchase a new automobile costing $10,000. Raylene received the automobile that was destroyed as a graduation present from her uncle Earl.

> When does a taxpayer realize a loss on a worthless security? What is the amount of realized loss? What rules govern the recognition of a loss on a worthless security? Explain.

> Festus Farmers Cooperative truck barn, which has a $50,000 adjusted basis, is destroyed by a fire. Festus receives $80,000 from its insurance company for the barn and uses the proceeds as a down payment on a new grain silo costing $160,000. Identify the

> Stephanie owns 75% of the Gould Corporation. She exchanges land that she owns as an investment for an office building owned by Gould that has a fair market value of $130,000. In the exchange, Stephanie gives Gould Corporation stock with a fair market v

> Claude is a CPA and a partner with SKH and Associates, a regional public accounting firm. In September 2015, Brokaw Technologies approached one of his clients, Walter Fenner, about acquiring 100 acres of land that Walter owned next to the company’s head

> What constitutes an exchange of assets?

> How does the wherewithal-to-pay concept affect the recognition of gains on asset dispositions? What else is necessary for nonrecognition of a gain upon disposition of an asset?

> In general, a taxpayer can exclude up to $250,000 of gain on the sale of a principal residence. However, this exclusion is only available every two years. Explain the circumstances under which the two-year restriction is modified and the tax treatment

> What are the requirements for excluding gain on the sale of a principal residence?

> Losses on exchanges must be deferred. A loss on an involuntary conversion is never deferred. In contrast, a loss on the sale of a principal residence is never recognized. Explain why losses on the sale of a principal residence are treated differently f

> What is a principal residence of a taxpayer?

> How should taxpayers determine the basis of securities sold when their portfolios contain several purchases of the same stock at different prices? Explain.

> How long does a taxpayer who suffers an involuntary conversion of an asset have to replace the asset to qualify for nonrecognition? Explain.

> The rules for loss recognition on involuntary conversions are more liberal than those for exchanges. What features of an involuntary conversion contribute to the difference in treatments for the two types of transactions?

> What is the recapture potential of an asset?

> Discuss the restrictions placed on like-kind exchanges between related parties. Include the reasoning behind the restriction in your discussion.

> Why does the assumption of a mortgage when exchanging related assets constitute boot?

> Define like-kind property as it applies to like-kind exchanges, and give examples of like-kind properties and properties that are not of like kind.

> Does an exchange have to occur simultaneously to qualify for nonrecognition? Explain.

> What is boot? How does boot affect the recognition of gains or losses on like-kind exchanges?

> When a gain on a depreciable property is deferred through a nonrecognition transaction, the tax attributes of the first property carry over to the second property. Why is this important, particularly with respect to like-kind exchanges of property?

> When a gain on a property disposition is deferred, the basis of the replacement property is reduced by the amount of gain deferred. Which concept supports this treatment? Explain.

> What basic tax-planning strategy should a taxpayer with a large net capital gain for the year pursue before the end of the year?

> Duke Plumbing and Wallpaper Company is a corporation that has been in business since 1998. During the current year, it has the following property transactions: a. A warehouse purchased in 2008 for $200,000 is sold for $180,000. Depreciation taken on th

> Why are cheques and credit cards not money?

> What are the official measures of money? Are all the measures really money?

> What are the problems that arise when a commodity is used as money?

> What makes something money? What functions does money perform? Why do you think packs of chewing gum don’t serve as money?

> In the United Kingdom, the currency drain ratio is 38 percent of deposits and the reserve ratio is 2 percent of deposits. In Australia, the quantity of money is $150 billion, the currency drain ratio is 33 percent of deposits, and the reserve ratio is 8

> Financial innovation and the spread of U.S. currency throughout the world has broken down relationships between money, inflation, and output growth, making monetary gauges a less useful tool for policymakers, the U.S. Federal Reserve chairman, Ben Bernan

> Answer the following questions. a. What changes in the interest rate and the quantity of M2 occurred between 2007 and 2014? b. When the interest rate fell, why did the quantity of M2 demanded increase? c. How would you interpret the growth of M2 and the

> The table provides some data for the United States in the first decade following the Civil War. a. Calculate the value of X in 1869. b. Calculate the value of Z in 1879. c. Are the data consistent with the quantity theory of money? Explain your answer.

> Use the data in Problem 7 to work this problem. The interest rate is 4 percent a year. Suppose that real GDP decreases from $20 billion to $10 billion and the quantity of money remains unchanged. Do people buy bonds or sell bonds? Explain how the interes

> The figure shows an economy’s demand for money curve. If the central bank decreases the quantity of real money from $400 billion to $390 billion, explain how the price of a bond will change. 390 00 a10 420 Rad mony bio of 2007 doll

> What are the four main ways in which the CPI is an upward-biased measure of the price level?

> Explain the change in the nominal interest rate in the short run if: a. Real GDP increases. b. The Bank of Canada increases the quantity of money. c. The price level rises.

> Banks in New Transylvania have a desired reserve ratio of 10 percent of deposits and no excess reserves. The currency drain ratio is 50 percent of deposits. Now suppose that the central bank increases the monetary base by $1,200 billion. a. How much do t

> The U.S. Federal Reserve discussed “a new largescale asset purchase program” commonly called “QE3.” Some members said such a program could help the economy by lowering long-term interest rates and making financial conditions, more broadly, easier. They d

> Describe the Bank of Canada’s assets and liabilities. What is the monetary base and how does it relate to the Bank of Canada’s balance sheet?

> Set out the transactions that the Bank of Canada undertakes to increase the quantity of money.

> If the Bank of Canada makes an open market sale of $1 million of securities to a bank, what initial changes occur in the economy?

> How does financial regulation in Canada help minimize the cost of bank failure? Does it bring more stability to the banking system?

> The RBC says lines of credit for education are popular and the size of loans to students has been going up as tuition costs have increased. Compared to “good debt” like a mortgage, student loan rates are higher because the debt is riskier. Financial inst

> Starbucks customers can now pay for their coffee using their smartphone. Does this mean the move to electronic payments is finally coming? If people can use their smartphones to make payments, will currency disappear? How will the components of M1 change

> Rapid inflation in Brazil in the early 1990s caused the cruzeiro to lose its ability to function as money. Which of the following commodities would most likely have taken the place of the cruzeiro in the Brazilian economy? Explain why. a. Tractor parts b

> How does the natural unemployment rate change and what factors might make it change?

> Sara withdraws $1,000 from her savings account at the TD Bank, keeps $50 in cash, and deposits the balance in her chequable account at the TD Bank. What is the immediate change in M1 and M2?

> The table sets out the data for an economy when the government’s budget is balanced. Suppose that the quantity of loanable funds demanded increases by $1 trillion at each real interest rate and the quantity of loanable funds supplied i

> The table sets out the data for an economy when the government’s budget is balanced. If the government’s budget becomes a deficit of $1 trillion, what are the real interest rate and investment? Does crowding out occur

> The table sets out the data for an economy when the government’s budget is balanced. a. Calculate the equilibrium real interest rate, investment, and private saving. b. If planned saving increases by $0.5 billion at each real interest

> First Call, Inc., a smartphone company, plans to build an assembly plant that costs $10 million if the real interest rate is 6 percent a year or a larger plant that costs $12 million if the real interest rate is 5 percent a year or a smaller plant that c

> Treasury Yields Fall to Two-Week Low Treasury bond prices rose on Monday, pushing interest rates down. The interest rate on 10-year bonds fell 4 basis points to 1.65%. What is the relationship between the price of a Treasury bond and its interest rate? W

> Lori is a student who teaches golf on Saturdays. In a year, she earns $20,000 after paying her taxes. At the beginning of 2014, Lori owned $1,000 worth of books, DVDs, and golf clubs and she had $5,000 in a savings account at the bank. During 2014, the i

> What is the Ricardo-Barro effect and how does it modify the crowding-out effect?

> How do changes in the demand for and supply of loanable funds change the real interest rate and quantity of loanable funds?

> What determines the supply of loanable funds and what makes it change?

> Define frictional unemployment, structural unemployment, and cyclical unemployment. Give examples of each type of unemployment.