Question

Which of the following would not be considered an involuntary conversion?
      a. The theft of jewelry 
      b. Sale of property in a flood zone
      c. Condemnation of a building for a highway
      d. Destruction of a home by a tornado
      e. All are involuntary conversions
6. Which of the following is not a characteristic of involuntary conversions?
       a. Gain only is deferred
       b. The taxpayer can receive cash to invest in qualifying replacement property
       c. The provision applies to both realty and personalty
       d. All of these are characteristics
       e. None of these are characteristics
7. The taxpayer-use test for qualifying replacement property
      a. applies only to personalty
      b. requires replacement property used by the taxpayer to be used in the same business as the converted property
      c. only requires leased realty to be replaced with other leased realty
      d. Is more restrictive than the functional-use test
8. Georgia’s home was damaged by flood. Its fair market value before and after the flood are $125,000 and  $75,000, respectively. Its adjusted basis was $90,000. Georgia received $50,000 from her insurance company and she was able to have the house repaired for $40,000. What is the amount of Georgia’s basis in the house after the repairs?
      a. $ 40,000
      b. $ 80,000
      c. $ 85,000
      d. $125,000
      e. None of the above
9. In a qualified reorganization:
      a. Gain is generally deferred.
      b. Only stock can be exchanged for stock.
      c. One corporation must acquire all the assets of another corporation.
      d. Two or more corporations are always involved

Answer 1

5) Solution: Sale of property in a flood zone

Explanation: An involuntary conversion arises due to the seizure, requisition, destruction, theft, or condemnation, or the disposition under imminence or requisition threat or condemnation of the property of the taxpayer.

6) Solution: All of these are characteristics

Explanation: An involuntary conversion arises due to the seizure, requisition, destruction, theft, or condemnation, or the disposition under imminence or requisition threat or condemnation of the property of the taxpayer.

7) Solution: only requires leased realty to be replaced with other leased realty

Explanation: The test of taxpayer-use for qualifying replacement property only needs that leased realty should be replaced with other leased realty

8) Solution: $80,000

Working: Adjustment basis $90,000 - Cash received from insurance company $50,000 + Repair expenses $40,000 = $80,000

9) Solution: Gain is generally deferred

Explanation: The gain is usually deferred in qualified reorganization