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Study Unit 11: Nonrecognition Property Transactions

1. Anne, who is single, owned and used her house as her main home from January 2019 until January 2024. She then moved away and rented her home from February 2024 until she sold it in August 2025. Her home sold for $240,000 (which included $20,000 of depreciation) and $12,000 of selling expenses. Using a zero basis, compute the amount that is excludable from income.
2. Roy and Joyce were single, and each owned a home as a separate principal residence for a number of years. In August 2024, Roy sold his home and had a gain of $130,000, which he entirely excluded. Roy and Joyce were married in October 2025. Joyce then decided to sell her principal residence for a $350,000 realized gain. They plan on filing a joint return for 2025. How much of the gain from the sale of Joyce’s home can be excluded on their joint tax return for 2025?
3. Which of the following statements is NOT a requirement that must be met before married taxpayers filing jointly can elect to exclude up to $500,000 of the gain on the sale of a personal residence?
4. Steve and Karen, a married couple, purchased a new residence on May 1, 2023. They sold their prior home on July 1, 2024, and realized a gain of $250,000, all of which they excluded. They sold the new home on August 1, 2025, because they wanted to live in a condo. What is the maximum amount of the gain they may exclude in 2025?
5. John bought his principal residence for $250,000 on May 3, 2024. He sold it on May 3, 2025, for $400,000. What is the amount and character of his gain?
6. When Amelia bought her first home in 2022, she paid $100,000 plus $1,000 closing costs. In 2023, she added a deck that cost $5,000. Then, in July of 2025, a real estate dealer accepted her house as a trade-in and allowed her $125,000 toward a new house priced at $200,000. How should Amelia report this transaction on her 2025 return?
7. Joe had a taxable gain on the sale of his main home, which could not be excluded on his 2025 tax return. He had no business use of the home. Which schedule does he need to submit to report the gain?
8. Pete purchased his home on June 1, 2016. On June 1, 2021, Pete became physically incapable of self-care and entered a licensed care facility. Pete sold the residence on April 15, 2025. Pete was residing in the facility at the time of sale. Pete had purchased the home for $150,000, and he sold the home for $300,000. What is Pete’s recognized gain for 2025?
9. Robert purchased his home for $150,000 in 2015. He sold it for $350,000 (including $100,000 for the land) in 2025. This was his primary residence until it was sold. However, Robert claimed one-fifth of his home as an office for his self-employed business. He claimed a total of $6,000 depreciation over the years. The $150,000 purchase was assessed at $90,000 building and $60,000 land. What is Robert’s taxable income as a result of the sale of this primary residence?
10. Martha, filing single, purchased her home on July 7, 2023, and lived in it continuously until its sale on January 7, 2025. The sale is due to a change in place of employment. Her gain on the sale of the home is $300,000. She did not exclude any gain on any other home sale during this time. What is the maximum amount of gain she may exclude on this sale?
11. Which of following does NOT qualify for exclusion from income of all or part of the gain from the sale of their main home in 2025?
12. Karen, who is single, paid $150,000 for her residence in January 2021 and lived in it until January 2023. She then moved away and rented her home from February 2023 until she moved back in February 2024. She sold it in August 2025 for $240,000. What amount of gain on the sale of her residence is excludable from income?
13. Joe and Jean, a married couple, purchased their primary residence in 1994 for $100,000. While they lived there, they made renovations at a cost of $125,000. They lived there until July 1, 2022. On June 15, 2025, the residence was sold for $800,000. From July 1, 2022, until June 15, 2025, the home was unoccupied. Joe and Jean file a joint return, and they have never excluded a gain from the sale of another home. What is their taxable gain?
14. Bill purchased a home for his principal residence January 1, 2021. However, from January 1, 2023, to December 31, 2024, another location served as Bill’s principal residence. Bill’s basis in the home was $300,000, and he sold the home for $600,000 on December 31, 2025. What is Bill’s recognized gain on the sale of the home?
15. On January 1, 2024, Fred and Mary Lou purchased a home for $150,000. Fred and Mary Lou are married and file jointly. On January 1, 2025, Fred and Mary Lou decided that they did not like the home and sold it for $158,000. What is the recognized gain on the sale?
16. Leon sold his home that he had owned and occupied for 7 years. Based on the following facts, compute his recognized gain:
Signed a contract on 1/4/2025 to sell his home
Sold 6/3/2025 for
$550,000
Selling expenses
9,000
Replaced and paid for a broken window 1/2/2025
100
Replaced and paid for a water heater 1/2/2025
350
Paid to have house painted 5/15/2025
3,000
Basis of old home before repairs and improvements
110,000
17. Mario sold his home in 2025. On the sale, he realized a $300,000 gain. Mario has lived in the home as his principal residence for the past 5 years. What is the amount of gain he must recognize in 2025?
18. A married couple who are both self-employed and work out of their home purchased a new home in July 2023 for $420,000. In September 2023, they converted two bedrooms into office space where they meet clients in their home. In April 2025, they sold their home on which they had taken $40,000 depreciation. Their home sold for $600,000. What amount of the gain is includible in their income on their joint return?
19. Myrtle moved in with Eddie in 2022. They then were married in 2024. Eddie had lived in this home for the past 13 years. In early 2025, Eddie and Myrtle decided that marriage was not for them; consequently, they were divorced. Eddie’s home was transferred to Myrtle incident to the divorce. Myrtle then sold the house for $250,000. The basis in the home was $80,000. What is Myrtle’s recognized gain on the sale of the home in 2025?
20. Arnold (age 60) and Beatrice (age 45) are married. They sold their home, owned by Arnold, at a profit of $300,000 on March 1, 2025. Beatrice unexpectedly died in September 2025 of a disease. Arnold remarried in February 2026 and purchased a new, more expensive home in March. Beatrice’s mother was appointed as executor of her estate. She elected to file a separate return for Beatrice for 2025. If Beatrice’s mother does not join Arnold in electing to exclude gain, how much of the gain can Arnold exclude on his 2025 return?
21. Patrick and Maureen are married. They purchased their residence on August 10, 2012, for $100,000. On September 20, 2025, they had a loan outstanding on the home in the amount of $95,000 when the bank foreclosed. The net proceeds from the foreclosure sale were $105,000, of which Patrick and Maureen received $10,000. What is the exclusion used by Patrick and Maureen to offset any gain?
22. On November 1, 2024, Ms. Green, a joint filer, purchased a condo in Dallas for $405,000. Ms. Green then received an offer of employment in Tampa, and on September 1, 2025, she sold the condo for $432,000 and purchased a new home in Tampa for $315,000. Ms. Green realized a $27,000 capital gain on the sale of the condo. How much gain can Ms. Green exclude on the sale of the condo?
23. Ms. Orchard purchased a duplex in 2011. She lived in one unit as her principal residence and rented out the other unit until she sold the duplex in February 2025. In April 2025, she bought and lived in a small single home. She did not replace the rental property. Her records showed the following:
Duplex
Original cost
$100,000
Capital improvements
30,000
Depreciation until date of sale
(rental unit only)
40,000
Selling price
250,000
Selling expenses
20,000
What is the amount of gain that Ms. Orchard may exclude in 2025?
24. Frances and George sold their principal residence for $1,000,000. They purchased the home 10 years ago for $250,000. They incurred improvement costs of $100,000, real estate commissions of $60,000, and other settlement costs of $10,000. They lived in this home until the date of sale. Frances and George file a joint return and have not previously excluded a gain on another home. What is their maximum taxable gain?
25. Jeff and Lynn were married in August of this year. Prior to their marriage, they had each maintained a separate principal residence. Jeff had a condo that he purchased for $160,000 15 years ago and sold in December of last year for $380,000. Lynn had a home that she purchased 10 years ago for $100,000 and sold in December of this year for $400,000. What is the amount of their recognized gain this year?
26. George and Marie sold their primary residence this year for $300,000. They purchased the home 20 years ago for $100,000 and lived in the home until the sale. George was a general contractor in business for himself and used 1/6th of the home as a business office. He deducted 1/6th of all costs, including depreciation, since the purchase. The original cost of $100,000 was assessed at $40,000 land and $60,000 building. In taking depreciation for the office, George used the straight-line method with a 30-year life. What is George and Marie’s depreciation on the business portion?
27. John and Lynn had lived in the home for the past 10 years and purchased the home for $500,000. They sold the home for $1.2 million. What is the maximum amount of gain they can exclude in the current year?
28. Senior gave his son, Junior, his personal residence with an adjusted basis of $60,000 and a fair market value of $40,000, 2 years ago. Junior sold the house in the current year, after living in it for the past 2 years, for $35,000. As a result of the sale, Junior will
29. Richard Rich owns a houseboat in Florida, a condominium in Colorado, a house in California, and stock in a housing cooperative in New York City. For the last 4 years, Richard Rich and his family have spent 3 months in the winter in the Florida houseboat, 1 month in the Colorado condominium, and the rest of the year in the New York City apartment. Prior to the last 4 years, Richard Rich and his family lived in the California house year-round. It is now vacant. Richard just put his stock in the New York City cooperative up for sale. Which property qualifies as a principal residence under Sec. 121?
30. A married couple, filing a joint return, validly claims the $500,000 exclusion of gain available on the sale of a principal residence. Which of the following statements is true?
31. A married couple, filing a joint return, claims the $500,000 exclusion of gain available on the sale of a principal residence. Which of the following statements will disqualify the couple from using the $500,000 exclusion?
32. Which of the following statements is true regarding exclusion of the gain on the sale of a principal residence?
33. Mr. and Mrs. Moore sold their principal residence for $750,000. They had lived in their home for 20 years, and it had an adjusted basis of $210,000. The Moores have decided not to purchase a new home and will instead rent a condominium on the beach. What amount of gain must they recognize on this transaction?
34. On December 10, Year 1, Ms. Poor, a single taxpayer, signed a contract to sell her home, which had been used as a principal residence for the last 12 years. Her home had an adjusted basis of $124,000. On January 20, Year 2, she sold her house for $200,000. On March 1, Year 2, she purchased a new home for $175,000. What is her recognized gain and the adjusted basis of the new home?
35. On December 1, Year 1, Joe Jackson purchased a home for $90,000. On June 1, Year 2, Joe received a job offer that would require him to move across the country. On August 1, Year 2, Joe sold his house for $100,000 and moved to his new location. Upon relocating, Joe purchased a new home for $95,000. What is his recognized gain on the sale of his first house?
36. On December 1, Year 1, Austin and Dawn purchased a home in New Orleans for $400,000. Austin received a job opportunity in Tampa, and on March 1, Year 2, they sold their home for $500,000 and purchased a similar sized home in Tampa for $350,000. What is the amount of gain that they must recognize on the sale of their home?
37. On February 1, Year 1, Jamie purchased a home for $96,000. On January 1, Year 2, Jamie decided he did not like his house and sold it for $108,000. What is his recognized gain on the sale?
38. Joe and Mary, a married couple, each 35 years old, purchased their residence 10 years ago for $150,000. On October 28 of the current year, they had a loan outstanding on the home in the amount of $120,000 when the bank foreclosed. They did not purchase another home. The net proceeds from the foreclosure sale were $175,000, of which Joe and Mary received $55,000. What is the amount and character of the taxable gain Joe and Mary should include in their income?
39. On December 1, Year 1, William and Monica purchased a home for $250,000. William and Monica are married and file jointly. On December 1, Year 2, William changed jobs and the couple had to sell the home to Al, a not-so-shrewd investor, for $600,000. What amount of the realized gain will they be able to exclude?
40. Jerry and Elaine were married on August 15 of the current year. Prior to their marriage, they had each maintained a separate principal residence. Jerry had a home that he purchased for $80,000 15 years ago and sold in December of last year for $100,000. Elaine had a home that she purchased 10 years ago for $164,000, which she sold in December of the current year for $242,000. What amount of the gain is excluded in the current year?
41. Pete sold his home in Year 1, which he had lived in for 15 years. Pete’s records reflect the following:
Signed a contract on 12/17/Yr 1 to sell his home
Sold old residence on 12/20/Yr 1 for
$471,000
Selling expenses on the old residence
5,000
The following two items were done during the 90-day period ending 12/17/Yr 1 and paid by Pete on 2/4/Yr 2:
Installed a new water heater and sump pump
900
Replaced broken windows; did touch-up painting
800
Basis of old home as of 9/15/Yr 1
155,000
Based on the facts provided above, what is the amount of Pete’s realized gain and recognized gain?
42. Juan sold his home in Year 1. Juan had owned and occupied the home for 8 years. Based on the following facts, what is the amount of his recognized gain?
Signed a contract on 3/4/Yr 1 to sell his home.
Sold 8/3/Yr 1 for
$1,000,000
Selling expenses
50,000
Replaced and paid for a broken window 3/2/Yr 1
300
Basis of old home before repairs and improvements
600,000
43. Tim and Gwenn sold their jointly held home on June 19 of the current year for $435,000. Their adjusted basis in the home at that time was $200,000. They both have lived in the home for the past 5 years. What is the recognized gain on the sale of the home?
44. Clyde, a single person, sold his principal residence for $700,000. He purchased his home 10 years ago for $150,000 and lived there until he sold it. He paid for capital improvements of $75,000, real estate commissions of $36,000, and other settlement costs of $4,000. How much taxable gain must Clyde report?
45. Jarel transferred an apartment building held for investment to Ron, an unrelated party, in exchange for an office building. At the time of the exchange, the apartment building had a fair market value of $60,000 and an adjusted basis to Jarel of $50,000. The apartment building was subject to a liability of $15,000, which Ron assumed for legitimate business purposes. The office building had an adjusted basis to Ron of $30,000 and a fair market value of $40,000. In addition, Jarel received $5,000 cash in exchange. What is Jarel’s recognized gain on this exchange?
46. Which of the following statements is false with respect to the identification requirement of like-kind real property?
47. Clark uses a lot in his landscaping business. Clark’s sister Lois is a home decorator who uses a similar lot in her business. On December 27, 2024, Clark and Lois exchanged lots. The fair market value of Clark’s lot was $7,000 with an adjusted basis of $6,000. The fair market value of Lois’s lot was $7,200 with an adjusted basis of $1,000. On December 28, 2025, Clark sold the lot to a third party for $7,200. What is the amount of gain, if any, that Clark has to report on his 2025 return?
48. Mr. Almond farmed a total of 200 acres of land, comprised of two parcels of land located about one-half mile apart. One parcel was 120 acres, and the second parcel was 80 acres. Mr. Almond found moving his workers and equipment between the two parcels to be very expensive. He approached the ABC farming partnership, which owned 80 acres next to Mr. Almond’s 120-acre parcel, about entering into a nontaxable exchange of his 80 acres for the 80 acres owned by the partnership. Mr. Almond has a cost basis of $100,000 in his 80 acres. The fair market value of his 80 acres at the time of the proposed exchange was $400,000, and the fair market value of the ABC partnership’s 80 acres was $350,000. The ABC partnership agreed to an exchange. In 2025, Mr. Almond transferred his 80 acres to the ABC partnership in exchange for ABC’s 80 acres and $50,000 cash. What was the amount of Mr. Almond’s recognized gain in 2025?
49. A nontaxable exchange is an exchange in which any gain is not taxed and any loss cannot be deducted. To be nontaxable, the exchange must meet all of the following conditions EXCEPT
50. Emmett transferred an apartment building he held for investment to Ray, an unrelated party, in exchange for an office building. At the time of the exchange, the apartment building had a fair market value of $90,000 and an adjusted basis to Emmett of $70,000. The apartment building was subject to a liability of $30,000, which Ray assumed for legitimate business purposes. The office building had an adjusted basis to Ray of $30,000 and a fair market value of $80,000. In addition, Emmett received $10,000 cash in exchange. What is Emmett’s recognized gain on this exchange?
51. Which of the following examples of property may qualify for a like-kind exchange?
52. Matt Carlsen owned an office building for investment purposes on the south side of Chicago. Matt’s adjusted basis in the building was $75,000 and the fair market value (FMV) was $90,000. He exchanged his investment for other real estate held for investment with a FMV of $80,000. What is Matt’s basis in the new building?
53. Mr. Monty owned an office building that he had purchased at a cost of $600,000 and that later had an adjusted basis of $400,000. This year, he traded it to a person who was not related to him for an apartment house having a fair market value of $500,000. The apartment house has 50 units and rents to individuals. The office building has 25 units and rents to Monty’s businesses. What is Mr. Monty’s recognized gain or loss on this exchange?
54. During the current year, James exchanged a warehouse he used in his business for a storage facility his sister Donna used in her legal practice. For this to be treated as a nontaxable exchange, how long must James and Donna each hold the property exchanged?
55. Ernie had an adjusted basis of $15,000 in real estate he held for investment. Ernie exchanged it for other real estate to be held for investment with a fair market value of $12,500, a truck with a fair market value of $3,000, and $1,000 cash. What is the total basis of the real estate and the truck?
56. Joe exchanged his warehouse with an adjusted basis of $80,000 for a new warehouse with a fair market value (FMV) of $70,000 and $20,000 cash. Both warehouses are used in his business. What gain, if any, must Joe recognize, and what is his basis in the new warehouse?
57. Katrina transferred an apartment building held for investment to Mona in exchange for an office building. The apartment building was subject to a liability of $10,000, which Mona assumed for legitimate business purposes. The office building had an adjusted basis of $20,000 and a fair market value of $35,000. The apartment building had a fair market value of $50,000 and an adjusted basis of $30,000. Katrina received $5,000 cash in addition to receiving the office building. What is Katrina’s recognized gain on this exchange?
58. Ted and William agreed to trade apartment buildings, with Ted agreeing to pay William $10,000 cash. Ted’s basis in his apartment building is $40,000. William’s basis in his apartment building is $50,000. What is Ted’s basis in his new apartment building?
59. In a nontaxable exchange, Tony traded a warehouse having an adjusted basis of $50,000 and a fair market value of $75,000 for another warehouse having a fair market value of $110,000. In addition, Tony paid cash of $30,000. What is Tony’s basis in the warehouse?
60. In 2017, Ms. Nugget, a farmer, inherited a large parcel of land that had a fair market value of $150,000 at that time. She used the large parcel in her farming operations. In 2025, Ms. Nugget decided she no longer wanted the large parcel in her farm operations, so she offered it for sale for $250,000. Mr. Oak approached Ms. Nugget with an offer to exchange a small parcel (which Ms. Nugget wanted for her farming operations) and some farm equipment for the large parcel. The small parcel had a fair market value of $200,000, and the equipment had a fair market value of $50,000. Ms. Nugget accepted Mr. Oak’s offer and entered into a partially nontaxable exchange in which she exchanged her land for Mr. Oak’s land and equipment. What is Ms. Nugget’s basis in the small parcel?
61. In a nontaxable exchange, Tony traded a warehouse having an adjusted basis of $120,000 for a new warehouse that had a fair market value of $104,000 and a machine with a basis of $15,000 and a FMV of $20,000. What is Tony’s basis in the new warehouse?
62. Mr. Scott owned a parcel of real estate that he was holding for investment. It had an adjusted basis of $50,000. Mr. Scott exchanged the real estate for the assets listed below:
Land to be held for investment:
Fair market value
$60,000
A boat for personal use:
Fair market value
3,000
Cash
2,000
What is the amount of Mr. Scott’s basis in the real estate that he received?
63. Joe exchanged a building for another like-kind building. Joe had a basis of $16,000 before he had made $10,000 in improvements prior to the exchange. He exchanged it for a building worth $36,000. Joe did not recognize any gain from the exchange on his 2025 individual tax return. What is Joe’s basis in the new property?
64. In a like-kind exchange of an investment asset for a similar asset that will also be held as an investment, no taxable gain or loss will be recognized on the transaction if both assets consist of
65. Assuming all items are held for use in a business or for investment, which of the following does NOT qualify as a nontaxable like-kind exchange?
66. Which of the following statements with respect to the exchange of like-kind real property is true?
67. Alex is a general partner in the XYZ Partnership. The basis of his partnership interest is $50,000 and the fair market value is $100,000. Bill is a limited partner in the ABC Partnership. The basis of his partnership interest is $30,000, and the fair market value is $100,000. Alex and Bill exchange their partnership interests. No other consideration is involved in the exchange. Which of the following is the best answer?
68. Python Corporation wants to obtain commercial property located on Mainstreet. Paul, one of its customers, owns the property and uses it in his business. Python offers to give Paul the land it owns next to its business and inventory items worth $70,000 in exchange for his Mainstreet property. Paul’s basis in the Mainstreet property is $160,000, and its fair market value is $350,000. The land owned by Python has an adjusted basis to Python of $100,000 and a fair market value of $280,000. Paul will hold the land he receives from Python for investment purposes. What is the amount of Paul’s recognized gain if he accepts the offer?
69. Mr. A exchanged stock and real estate that he held for investment for other real estate he intends to hold for investment. The stock at the time of the exchange had a fair market value of $30,000 and an adjusted basis to A of $27,000. A’s old real estate had a fair market value of $150,000 and an adjusted basis to him of $90,000. The real estate acquired by Mr. A had a fair market value of $180,000 at the time of the exchange. What is the amount of A’s recognized gain (or loss) on the exchange?
70. On October 1 of the current year, Donald Anderson exchanged an apartment building having an adjusted basis of $375,000 and subject to a mortgage of $100,000 for $25,000 cash and another apartment building with a fair market value of $550,000 and subject to a mortgage of $125,000. The property transfers were made subject to the outstanding mortgages. What amount of gain should Anderson recognize in his tax return for the year?
71. Timbertoppers, Inc., is in the forestry business. It wanted to acquire a parcel of property owned by Woody, who held the property for investment. Woody would not sell but agreed to exchange the property if Timbertoppers could find other suitable property. Timbertoppers could not locate suitable property immediately, so the parties entered into an agreement by which Timbertoppers took title to Woody’s property (which had a fair market value of $400,000 and a basis of $50,000) on August 1, Year 1, and an escrow arrangement was set up in which Timbertoppers placed certificates of deposit as security until real property could be found to suit Woody. If one parcel valued at $300,000 is identified on September 1, Year 1, and transferred to Woody on January 10, Year 2, and a second parcel valued at $100,000 is identified on October 1, Year 1 and transferred to Woody on December 20, Year 1, what is Woody’s gain?
72. Rochelle transferred an apartment building she held for investment to Mona in exchange for land moving equipment. The apartment building was subject to a liability of $20,000, which Mona assumed for legitimate business purposes. The land moving equipment had an adjusted basis of $40,000 and a fair market value of $70,000. The apartment building had a fair market value of $100,000 and an adjusted basis of $60,000. Rochelle received $8,000 cash in addition to receiving the land moving equipment. What is Rochelle’s recognized gain on this exchange?
73. Mr. McCarthy exchanged real estate that he held for investment purposes for other real estate that he will hold for investment purposes. The real estate that he gave up had an adjusted basis of $8,000. The real estate that he received in the exchange had a fair market value of $10,000, and he also received cash of $1,000. Mr. McCarthy paid $500 in exchange expenses. What is the amount of gain recognized by Mr. McCarthy?

 

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