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Harry and Sally decide to sell a personal residence they own for $475,000. Under §121, they believe they qualify for the $500,000 home sale exclusion, since they are married. For this purpose, however, how does the IRS determine whether they are married?
Norman needs to sell a personal residence he has lived in for 18 months. He is concerned he may not qualify for the §121 exclusion since he did not meet the two-year requirement. However, his advisor should explain that he would likely qualify since:
Kevin wishes to dispose of some rental property by entering into a like-kind exchange. The main reason Kevin would like to do this is that a §1031 exchange would allow him to build equity rather than reduce it:
During a tax seminar you are presenting, a participant, Ernie, would like to know the distinguishing features of a §1031 like-kind exchange. You might first want to point out that this type of transfer is conceptually different than:
Gilbert owns some commercial property he would like to exchange with Sam, who owns some commercial property on the other side of town. However, while Sam is open to an exchange, he is not interested in Gilbert’s property. Given this, Gilbert would likely want to:
Karen would like to structure the exchange so that Brian first purchases some residential lots in another subdivision from Mary and then exchanges the lots with Karen. Karen seeks your advice, wondering whether this is a valid arrangement. You explain to her that she would:
Bryson has agreed to let Jena acquire his property through a §1031 exchange, but Bryson has yet to locate property to exchange into. How might using a delayed exchange help her?
Amanda carried out a §1031 exchange with her brother Mark. However, §1031 nonrecognition treatment was lost because:
Prior regulations provided certain shortcuts for multiple assets exchanges involving personal property by requiring taxpayers to assign assets into:
Stephanie and Christopher have agreed to a delayed exchange. You explain that, under §1031, a replacement property needs to be identified within a specific time period, which begins the day Stephanie, the exchanger, transfers the relinquished property. Once she transfers the property, when would the identification period end?
Ryan has agreed to a delayed exchange, since a property involved in the exchange has not been identified; however, funds have been deposited into escrow. You point out that there are four safe harbors for such cash under the rules of §61 and §451 in a delayed exchange. Under these exchange safe harbors, actual receipt would occur when:
Ashlee would like to exchange an interest in a real estate partnership, but has been told that partnership exchanges are disallowed under §1031. However, her tax advisor explains that, under the 1990 Budget Reconciliation Act, she can carry out a §1031 exchange of:
Evan received money in payment for a property that was disposed of under threat of condemnation. He is concerned and consults with his tax advisor who informs Evan that he should be able to postpone any gain under:
The Iowa state government would like to take possession of land owned by several Johnson County farmers in order to run a power line without the consent of the owners. The process by which the State of Iowa would be able to do this legally would be through:
Larry is a farmer who is certain the county will condemn some of his land in order to expand a county park. However, he sells his land to a private party rather than give it up to the county. In this case, Larry would:
Jared owned land in western Nebraska but, decided to sell it after an adjacent landowner had his property condemned. You should explain that even though Jared sold his land voluntarily, the sale may still be a forced sale qualifying as a condemnation since:
For public use, the City of New Bedford legally acquired land owned by Howard without his consent. What is the term for the money Howard received as a result of the city’s acquisition of his property?
When the State of New York condemned some land that Fiona owed for public use, Fiona received a monetary award and now needs to determine her net condemnation award. In making this determination, what should Fiona subtract from the total award received?
Dawson owned a large tract of land that was condemned by the county. However, only part of the property was condemned. In his case, Dawson should be able to receive severance damages, since the value of the part retained was:
Kristi’s commercial lot in Terra Haute, Indiana was condemned by the state. She wants to postpone any gain from this disposition; however, to do so, Kristi needs to buy replacement property:
Kristi purchased §1033 replacement property from her brother, Joe. As a result of her related party purchase, she may be unable to defer gain under §1033. However, in her case, §1033 would apply since:
During the tax year, Max experienced a variety of reportable losses. Under §469, you should explain to Matt that he must categorize his income and losses into two statutory categories, which would be:
Under §469, Matt has been sorting his losses for the year into the required statutory categories However, which of Matt’s losses will be unaffected by §469?
As he prepares his federal income return, Jack wants to claim credits and losses from passive activities. You should explain to Jack that §469 places a limitation on the use of these passive items. For example, the use limitation on credits from a passive activity is:
Karl is a financial consultant and part-time real estate and stock market investor. When preparing his federal income taxes, he claimed portfolio income which, in his case, originated from:
Ian owns an engineering consulting firm and claims material involvement in the firm when he files his federal income taxes. Under §469(h)(1), he should base his claim on:
During the tax year, Shawn disposed of an entire interest in a §469 passive activity on which he realized an overall loss. How would Shawn treat the loss?
Tony is discussing passive loss rules with his tax advisor and wants to know why he cannot currently claim any such losses. His advisor explains that, under §469, Congress intended Tony only be able to claim such losses when:
Chelsea is a partner in a clothing retail business she owns with two other business associates. For her business, at what level would allocations and distributions be limited under the §469 passive loss rules?
Under §469(a)(2), David learned his organization is subject to the passive loss limit. The main reason for this would be that his organization is a:
John is debating whether to form his architectural business as a corporation or a partnership. You should inform John that, under §469, work in certain professional fields can result in a corporation being subject to the passive loss limits. What is this type of work called?
Trevor would like to claim material participation in a seafood restaurant. He would like to know how he would establish the extent of his participation in the activity. You explain that he would do so by:
Mary and her brother own residential rental units and they work hard to maintain them. When they meet with their tax advisor, Mary is surprised to learn that their rental activity is passive. The advisor explains that it is treated as passive:
Sean claimed a deduction resulting from a passive activity for a taxable year that surpassed his total gross income resulting from passive activity for the taxable year. In his case, under §469(a)(1)(A), he would have:
Your colleague, Grant, wants clarification on mixed activities. His understanding is that, under §469, the amount realized and the adjusted basis may be allocated only to one primary activity. You explain this is true if the interest’s fair market value does not exceed the lesser of 10% of the value of all property used in such activity immediately before the disposition and:
Allison would like to know whether she has any useable passive activity credits. You explain that her regular tax liability is needed to determine whether she has §469 passive activity credits. To compute her regular tax liability, you would:
Your client, Alan, would like to know whether the passive activity audit guide, released by the IRS, is still useful since it is based on pre-OBRA ’93 law. How would you answer his concern?
Some Chinese investors would like to invest in South Dakota farmland. If consulted, you should explain that foreign investors are subject to the same tax rules and rates that apply to U.S. investors and, that the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) is designed to:
Gerald invested in a foreign corporation but, recently disposed of his interest in the company. He then learned he was subject to a tax on the disposition, although it was his understanding he would not have to pay a tax. His advisor explains that, in his case there was an exception since:
Barb joined a pool of investors who have invested capital in a real estate income trust (REIT). Barb asks if the trust’s income will be taxed twice – once at the entity level and again to the investors. You should explain that income from a REIT can be distributed to its shareholders:
Jan would like to invest in a REIT that operates using the trust format. When she meets with her advisor, she inquires as to who would run such a REIT. Her advisor explains that it would be run by:
Julie is interested in a self-liquidating REIT which is designed to overcome a significant limitation that organizers or investors in publicly owned REITs face. However, you should point out to her that the shares in such a REIT have a propensity to trade at a sizable discount from the:
Paul has learned that REITs must meet numerous tax requirements pertaining to their organization, operation, assets, and income. For example, you should explain that a very important requirement for investors is that: