Reference no: EM132839444
Questions -
Q1) Steve enters into a 1031 exchange with Alex. Steve's business building has a basis of $300,000 and he takes Alex's raw land worth $800,000 with an assumable mortgage of $250,000 and a basis of $430,000. Steve also pays Alex $50,000 in cash. What is Steve's basis in the new asset?
a. $300,000
b. $350,000
c. $600,000
d. $700,000
Q2) Mary owns a vacant lot used in her business. She exchanges it for a property with a small storage facility on it owned by Sue. The basis of Mary's vacant lot is $40,000. She gives Sue $20,000 cash plus the vacant lot in exchange for Sue's property, which is worth $36,000. Sue's basis in her original asset is $10,000. What is Mary's deferred gain or loss?
a. $0
b. $16,000
c. $24,000
d. $40,000
Q3) Purchased a life insurance policy to provide for her young children in the event of her death. Since the children are now grown, she would like to exchange the life insurance policy for an annuity that will provide her with additional income in her retirement years. Which of the following is true regarding the exchange of the life insurance policy for the annuity?
a. The exchange will result in recognition of gain.
b. The exchange of a life insurance policy for an annuity is not permitted
c. The exchange will be tax-free
d. The exchange will be a transfer-for-value.
Q4) Mary owns a vacant lot used in her business. She exchanges it for a property with a small storage facility on it owned by Sue. The basis of Mary's vacant lot is $40,000. She gives Sue $20,000 cash plus the vacant lot in exchange for Sue's property, which is worth $36,000. Sue's basis in her original asset is $10,000. What is Mary's gain or loss?
a. No gain or loss
b. $24,000 loss realized and recognized
c. $24,000 loss realized, but not recognized.
d. $44,000 loss realized and recognized.
Q5) Mary owns a vacant lot used in her business. She exchanges it for a property with a small storage facility on it owned by Sue. The basis of Mary's vacant lot is $40,000. She gives Sue $20,000 cash plus the vacant lot in exchange for Sue's property, which is worth $36,000. Sue's basis in her original asset is $10,000. What is Sue's gain or loss?
a. $20,000 gain recognized
b. $26,000 gain realized and recognized
c. $0 gain recognized
d. $0 loss recognized
Q6) Steve enters into a 1031 exchange with Alex. Steve's business building has a basis of $300,000 and he takes Alex's raw land worth $800,000 with an assumable mortgage of $250,000 and a basis of $430,000. Steve also pays Alex $50,000 in cash. What is Alex's basis in the new asset?
a. $200,000
b. $250,000
c. $300,000
d. $430,000
Q7) Denise worked at a company that had purchased a $100,000 key person policy on her life. When Denise left the company, the employer offered to sell her the policy. Denise purchased the policy from the employer for $17,000. Denise continued to make the premium payments which were a total of $7,000. When Denise died, her daughter Darlene received the policy proceeds from the insurance company. What are the income tax consequences for Darlene?
a. Darlene will receive the policy proceeds income tax-free
b. Darlene must recognize an ordinary income of $76,000
c. Darlene must recognize capital gains of $76,000
d. Darlene must recognize capital gains of $76,000 and ordinary income of $24,000.