1. Which of the following property exchanges does NOT qualify as a like-kind exchange?

A. Exchange of city property for farm property.
B. Exchange of partnership interests.
C. Exchange of improved property for unimproved property.
D. Exchange of an ownership in real estate for a thirty year lease in real estate.

2. Which of the following transactions is NOT a transaction that results in a gain or loss subject to section 1231 treatment?

A. Sales or exchanges of leaseholds.
B. Sales or exchanges of cattle and horses.
C. The sale of a copyright, literary, musical, or artistic composition that you created.
D. Sales or exchanges of unharvested crops sold together with land to the same buyer.

3. Larry owned 35 shares of Flower Corporation stock for which he had paid $3,500. He sold this stock to this sister, Karen, for $3,000. Karen later sold this stock to her cousin, Joe, for $10,000. What is Larry's and Karen's recognized gain or loss, if any?

A. $0 loss for Larry and $6,500 gain for Karen.
B. $0 loss for Larry and $7,000 gain for Karen.
C. $500 loss for Larry and $7,000 gain for Karen.
D. $0 for Larry and $0 for Karen.

4. Which of the following transactions qualifies as a like-kind exchange?

A. The exchange of a copyright on a novel for a copyright on a song.
B. An exchange of the "goodwill or going concern value" of another business.
C. An exchange of land improved with an apartment house for land improved with a store building.
D. An exchange of personal property used predominantly in the United States for personal property used predominantly outside the United States.

5. Special rules apply to like kind exchanges between related persons. Under these rules, related persons are:

A. The taxpayer and a member of his/her family.
B. The taxpayer and a corporation in which the taxpayer has a 25% ownership.
C. The taxpayer and a partnership in which the taxpayer directly or indirectly owns a 25% interest in the capital or profits.
D. All of the above.

6. Which of the following does not qualify as a nontaxable exchange or transfer?

A. A life insurance contract for an annuity contract.
B. A general partnership interest for a general partnership interest in the same partnership.
C. A transfer of property from an individual to a former spouse, incident to divorce.
D. None of the above.

7. Walter is an accrual basis taxpayer who has a business with significant accounts receivables. In 2008, Walter had an $8,000 receivable owed to his business from Fred. Fred was unable to pay the full amount, but did transfer a parcel of land with a fair market value of $6,000 to Walter in partial payment. Walter entered on his books the $2,000 difference as a business bad debt, but was unable to take a tax benefit from this bad debt deduction as he had no taxable income at the end of 2008. In 2009, Walter sold the land received from Fred at a $3,000 gain. At the end of 2009, how much gain from the sale of this land must Walter report in taxable income?

A. $3,000 - the entire gain.
B. $1,000 - the gain less the bad debt.
C. $0 - any gain is limited to the amount of bad debt.
D. None of the above.

8. Kayla exchanged her unimproved land with an adjusted basis of $80,000 and a fair market value of $130,000 for unimproved land with a fair market value of $100,000 and $10,000 in cash. Kayla also paid $5,000 in exchange expenses. The unimproved land Kayla gave up was subject to a $300,000 mortgage for which she was liable. The other party assumed this mortgage. What is Kayla's realized gain on this exchange?

A. $40,000.
B. $55,000.
C. $325,000.
D. $25,000.

9. In 2005, you purchased a candy making machine for your business. The machine cost $50,000 and you claimed a $20,000 Internal Revenue Code section 179 deduction for that machine. IN 2009, you sold the machine for $52,000. Your accumulated depreciation from 2005 through 2009 was $18,974 (not including the section 179 deduction). How much is your taxable gain and what portion of that gain must be reported as ordinary income under Internal Revenue Code section 1245?

A. Taxable gain of $40,974 and ordinary income of $38,974.
B. Taxable gain of $40,974 and ordinary income of $40,974.
C. Taxable gain of $20,974 and ordinary income of $18,974.
D. Taxable gain of $2,000 and ordinary income of $2,000.

10. The Andee Partnership traded its panel truck with an adjusted basis of $10,000 for a pick-up truck with a fair market value of $15,000. Andee also received $3,500 cash on the trade. What is the gain, if any, on this trade?

A. $0.
B. $3,500.
C. $5,000.
D. $1,500.

11. The Sprinkly and Meato Partnership bought investment property on March 9, 2008 and sold it on March 9, 2009. The property cost $100,000 and it was sold for $135,000. What is the character of the gain or loss?

A. Long term gain of $35,000.
B. Ordinary income $135,000.
C. Short term gain of $35,000.
D. Long term gain of $135,000.

12. The Post and Rail Partnership traded a piece of farm land with an adjusted basis of $4,000 for a farm land for a farm tractor that has a fair market value of $9,000 and an adjusted basis of $8,000. What is the recognized gain or loss?

A. $5,000.
B. $4,000.
C. $1,000.
D. None, it is a like kind exchange.

13. Arthur is a proprietor of Arthur's Pizza Emporium. He bought a commercial building several years ago. He made a down payment of $20,000 in cash and assumed a mortgage for $100,000. After he paid off the mortgage, Arthur later sold the building for $180,000. Straight line depreciation taken up to the date of sale was $18,000. What is the total gain on the sale?

A. $78,000.
B. $80,000.
C. $60,000.
D. $160,000.

14. In 2009, Clarence sold his business backhoe for $65,000. He purchased the backhoe in 2006 for $90,000. He has taken $60,000 of depreciation, which includes $10,000 section 179 expensing election. Clarence will report the following on the sale of the backhoe:

A. Ordinary loss of $25,000.
B. Long-term capital gain of $35,000.
C. Ordinary income of $35,000.
D. Ordinary income of $10,000 and long-term capital gain of $25,000.

15. In 2009, Jason sold a business lot to his son Adam for $12,000. Jason received this lot in a tax-deferred exchange in 2007 for a lot that cost him $175,000 in 2004. Jason will recognize the following on his 2009 tax return:

A. No gain or loss.
B. An ordinary loss of $55,000.
C. A long term gain of $120,000.
D. A long term loss of $163,000.

16. Sally's business office was condemned to make way for an expanded highway on May 1, 2009. Sally's adjusted basis in her building was $20,000 ($80,000 original costs less $60,000 in depreciation). Her proceeds from condemnation were $220,000. Sally replaces her office on November 10, 2009 at a cost of $185,000. Sally must recognize a gain of:

A. $200,000.
B. $0.
C. $35,000.
D. $60,000.

17. John was one of five incorporators of Builders, Inc. Each received stock valued at $100,000. The other four shareholders each contributed $100,000 for their stock. John contributed $50,000 and his services to build the corporate headquarters. He valued his services at $50,000. How much income must John recognize on this transaction?

A. $100,000 of ordinary income.
B. $50,000 of ordinary income and $50,000 of capital gain income.
C. No income recognition.
D. $50,000 of ordinary income.

18. Pietro transfers property worth $50,000 to Vino, Inc. and, also, provides personal services worth $5,000 in exchange for stock valued at $55,000. Immediately after the exchange Pietro owns 90% of Vino, Inc.'s outstanding stock. What is Pietro's income recognition, if any?

A. $55,000 Capital Gains, $0 Ordinary Income.
B. $0 Capital Gain, $5,000 Ordinary Income.
C. $0 Capital Gain, $50,000 Ordinary Income.
D. $5,000 Capital Gain, $0 Ordinary Income.

19. Jenny transferred a factory building with an adjusted basis of $70,000 and a fair market value of $110,000 to the Crystal Corporation in exchange for 100% of Crystal Corporation stock and $20,000 cash. The building was subject to a mortgage of $25,000, which Crystal Corporation assumed. The fair market value of the stock was $75,000. Which is the amount of Jenny's realized gain and recognized gain?

A. Realized $25,000    Recognized $25,000.
B. Realized $50,000    Recognized $40,000.
C. Realized $50,000    Recognized $20,000.
D. Realized $35,000    Recognized $20,000.

20. The total basis for all properties qualifying for nontaxable exclusion that you receive in a partially nontaxable exchange is the total adjusted basis of the properties you give up with the following adjustments, except:

A. Any additional cost you incur.
B. Any money you receive.
C. Unlike property you receive up to its cost on the date of the exchange.
D. Any gain you recognize on the exchange.