[jeff]

Resources:

REG 10 Point Combo: https://www.another71.com/products-page/ten-point-combo

REG Exam Experience: https://www.another71.com/cpa-exam-forum/topic/reg-exam-experience-official-thread

AUD - 79
BEC - 80
FAR - 76
REG - 92

Jeff Elliott, CPA (KS)
NINJA CPA | NINJA CMA | NINJA CPE | Another71

[SeattleAccountant]

@LSNYC <if skipping to business law is spicing things up I worry for all of us….I am going to get wild and crazy tonight and add hazelnut to my coffee!! >

Hahaaaa, yeap, that's how bad things are 🙁

Gotta plow thru this stuff and keep doing it till the exam. Life can wait I hope.

Becker Class of Jan - Aug 2013: FARB DONE!!!!
CPA license pending 🙂

[gobias]

@AnnaNuthaCPA typically, boot is netted. There are a couple exceptions (debt boot paid and cash boot received is one, I believe), but I can't recall them all. I found a site that listed them out so I'll try to find it for you.

1) Basis of the asset given up is 20k and amount realized is only 13k so you have a loss. Since you recognize the lesser of boot received and gain realized ($0), gain recognized is 0.

Old basis 20k

– FMV of boot received (3k)

---

17k

2) Taxpayer paid boot, so lesser of gain realized (22k new auto – [17k old auto + 2k cash paid] = 3k]) and boot received ($0) is $0.

Old basis 35k – 18k = 17k

+boot paid 2k

---

19k

3) taxpayer receives boot, so lesser of gain realized (16.5k new auto + 3.5k trailer boot received – 17k old auto = 3k) and boot received (3.5k) is 3k.

Old basis 35k – 18k = 17k

– boot received 3.5k

+ gain recognized 3k

---

16.5k

The general formula for basis is:

Old basis

– boot received

+ boot paid

+ gain recognized

---

New basis

F - 86
R - 90
A - 97
B - 91

[Lisa]

@AnnaNutherCPA:

The problems you are showing me are like-kind exchanges. So before you make the calculations make sure the exchanged properties qualify for the like-kind exchange treatment. If so, then the following formula will help you solve any of these problems. (Note, I learned this method when I studied and took the CFP® exam, so it’s a bit different than Wiley, or Becker present this topic). Formula: “FPALG 2 vs 5 F (5-6) N” Written out in steps 1 thru 9.

1. FMV of Property Received

2. Plus Boot Received

3. =Amount Received

4. Less Adjusted Property of Property Given Up

5. =Gain Realized

6. Take the lower number 2 vs.5 and this is Gain Recognized (if a negative number, then zero)

7. FMV of Property Received

8. (5 – 6) this is item 5 minus item 6, so if negative then ADD it because it’s a double negative

9. New Basis

The above formula, requires a slight modification when you give up a mortgage and get a mortgage (2 mortgages)

So here your examples. Note this one has the double negative for step 8, so you add.

1. Leker exchanged a van that was used exclusively for business and had an adjusted tax basis of $20,000 for a new van. The new van had a fair market value of $10,000, and Leker also received $3,000 in cash. What was Leker's tax basis in the acquired van?

Answer $17,000

Calculation:

1. F 10

2. P + 3

3. A = 13

4. L – 20

5. G = (7)

6. Take Lesser of 2 vs 5, so 3 vs. (7), Gain Recognized is Zero, as it cannot be negative

7. F 10

8. (5-6) + 7 ( this was (7) -0 =(7), so you have a double negative, subtract (7) so add, tricky!

9. N = 17

2. A taxpayer is trading in an automobile used solely for business purposes for another automobile to be used in his business. The automobile originally cost $35,000 and he has taken $18,000 in depreciation. The old automobile is currently worth $20,000 and the new automobile the taxpayer wants in exchange is worth $22,000. The taxpayer has agreed to pay $2,000 cash in addition to the trade-in. What is the taxpayer's basis in the new automobile received? Answer $19,000

1. F 22

2. P + 0

3. A = 22

4. L -19 (note 35-18 = 17 +2=19, the 2 is the add’l cash paid)

5. G = 3

6. Lesser of 2 vs 5 0

7. F 22

8. (5-6) (3) (3-0=3)

9. N 19

3. A taxpayer is trading in an automobile used solely for business purposes for another automobile to be used in his business. The automobile originally cost $35,000 and he has taken $18,000 in depreciation. The old automobile is currently worth $20,000 and the new automobile the taxpayer wants in exchange is only worth $16,500. The other party agrees to give the taxpayer a trailer worth $3,500 in addition to the new auto. What is the taxpayer's basis in the new automobile received? Answer. $16,500

1. F 16.5

2. P + 3.5

3. A = 20

4. L -17

5. G = 3

6. Lesser of 2 vs 5 3

7. F 16.5

8. (5-6) (0) (3-3=0)

9. N 16.5

AUD 8/04/11: 78
BEC 1/9/12: 73, 4/04/12: 80
FAR 10/25/12: 80
REG 02/25/13: 79
Ethics 100%
VA License Issued 3/2013

[Lisa]

@AnnaNutherCPA:

And here are some more Like kind exchanges with 2 mortgages.

Like-kind exchange problems. Sample problem in the 2012 REG WIley text page 552 and a MC problem in REG Gleim 2013 pg 252 # 29. The 2 mortgages make the exchange a bit more complex. Here are the numbers in the Wiley example and how I compute this:

A & B each own properties that they exchange (like-kind). Details:

A Owns property, he exchanges, subject to a mortgage:

AB $50

FMV $70

Mort $15

AND

B Owns property, he exchanges, subject to a mortgage:

AB $60

FMV $65

Mort $10

So For A:

1. FMV of Prop rec'd $65

2. Plus boot received $15

3. = Amt Realized $80

4. Less AB (old) ($60) which is $50 + $10 Mort accepted)

5. = Gain Realized $20

6. Normally take the lesser of item 2 vs 5 expect in circumstances of 2 mortgages. With two mortgages, take item 2 mortgage less item 4 mortgage. So in this case ($15- 10 = $5)

Gain Recognized is $5

7. Fmv of Prop received $65

8. Less item 5-6 (note if negative then add) ($15) calculation was $20 – 5 = 15

9. (New) Basis of property received in like kind exchange= $50

AND for B: (this is how I abbreviate it, this method is from a financial planning background)

1. F $70

2. P $10

3. =A $80

4. L ($75) $60 + $15

5. =G $5

6. normally its the lesser of 2 vs 5, but with two mortgages you net $10 – $15 = negative number, so Zero

Gain Recognized = 0

7. F $70

8. Less(5-6) ($5) $5 – 0

9. New Basis = $65

If my method works for you, my memory aid is “FPALG 2 vs 5, F less (5-6) N.” The above is an exception, and its item 2 – item 4.

AUD 8/04/11: 78
BEC 1/9/12: 73, 4/04/12: 80
FAR 10/25/12: 80
REG 02/25/13: 79
Ethics 100%
VA License Issued 3/2013

[Lisa]

@AnnaNutherCPA:

And finally when I first replied with the following formulas: SH = AB + GR -BR and CORP= AB + GR

these are used in corporate formation aka 351 exchanges.

AUD 8/04/11: 78
BEC 1/9/12: 73, 4/04/12: 80
FAR 10/25/12: 80
REG 02/25/13: 79
Ethics 100%
VA License Issued 3/2013

[MCLKT]

NOTE TO SELF: when studying like kind exchanges return to page six and read all that Lisa has shared!

A:[73]97 F:[74]85 R:86 B:[74]82
*NINJA 10 Pt. COMBO & Yaeger*

[Lisa]

@MCLKT:

Thanks. Once you learn the formula and practice a few, you should be able to get any of these calculations correct, if you should get any on your exam.

By the way, I enjoy reading your posts. While I was taking the exam, I mainly used this great site for support and infrequently commented. But now I want to try and support other test takers as you and others helped me. Reading posts on this site was very helpful to me, and your prolific posts are great.

AUD 8/04/11: 78
BEC 1/9/12: 73, 4/04/12: 80
FAR 10/25/12: 80
REG 02/25/13: 79
Ethics 100%
VA License Issued 3/2013

[MCLKT]

Thanks Lisa! I'm glad you are sticking around after you finished 🙂 It's always so helpful to have the CPAs that have made it to the other side help out those of us stuck in the thick of it.

Congratulations on passing REG and being done with it all!

A:[73]97 F:[74]85 R:86 B:[74]82
*NINJA 10 Pt. COMBO & Yaeger*

[smp73]

I fell asleep going through flashcards last night. What a fun and exciting night!

On to corp tax today…if I can stay awake! My office is out of coffee…good thing I have a work “field trip” later and a Starbucks is in the same building.

Remind me why I thought April 17 was a prime date for a retake!?!

NYS CPA License # 113563
CIA: Done as of 2/15/14

Training for a half marathon post studying!

[MCLKT]

I woke up today with renewed drive! Just the thought of wrapping this up in 4 months is pretty damn exciting!

Once I get through more material I'll be able to join the rest of you in really study discussions 🙂

A:[73]97 F:[74]85 R:86 B:[74]82
*NINJA 10 Pt. COMBO & Yaeger*

[Anonymous]

Thank you Lisa!

So, in calculating gain recognized, you always net the mortgages for the boot, but you don't net cash for boot…correct?

I understand gain recognized like this: Take “boot received” (not any boot given unless its netting of a mortgage given/received) and compare to the gain realized, taking the lower of the two.

[Lisa]

@AnnaNuther:

Your first questions is yes. The second question works for the examples we went through, but I can not decisively say that it is always true. I suggest finding all the like kind exchange problems and making sure you do not find one that is an exception.Or if you find the example, I'll work it too…

AUD 8/04/11: 78
BEC 1/9/12: 73, 4/04/12: 80
FAR 10/25/12: 80
REG 02/25/13: 79
Ethics 100%
VA License Issued 3/2013

[Lisa]

@AnnaNutherCPA:

One more thing, if you follow the formula and just know how to work the 2 mortgage variation, then no matter what is shown to you in a calculation problem, then you will get the correct answer. Just make sure that the exchange qualifies for like kind exchange treatment. There is one MC in Wiley 2012 book where the exchange does not qualify, so watch out for this too.

AUD 8/04/11: 78
BEC 1/9/12: 73, 4/04/12: 80
FAR 10/25/12: 80
REG 02/25/13: 79
Ethics 100%
VA License Issued 3/2013

[Anonymous]

Hey Lisa, you've helped tremendously. Thank you!

I've re-done all the Becker questions I missed and am going to do the Wiley questions, as well. I'm determined to get these right on the exam!

[Lisa]

@AnnaNutherCPA:

Glad to hear it, Good luck to you. If you have any other questions, if you let me know, I'll try to help.

AUD 8/04/11: 78
BEC 1/9/12: 73, 4/04/12: 80
FAR 10/25/12: 80
REG 02/25/13: 79
Ethics 100%
VA License Issued 3/2013

[Author]

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