[jeff]

REG Resources:

Free REG Notes & Audio – https://www.another71.com/cpa-exam-study-plan

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

REG Score Release: https://www.another71.com/cpa-exam-scores-results-release

[MrsBing]

I feel like I already asked this question, but I did a search and couldn't find anything. This is from Becker chapter 1. Like kind exchanges. My question is at the very bottom.

In the current year, Tatum exchanged farmland for an office building. The farmland had a basis of $250,000, a fair market value (FMV) of $400,000, and was encumbered by a $120,000 mortgage. The office building had an FMV of $350,000 and was encumbered by a $70,000 mortgage. Each party assumed the other's mortgage. What is the amount of Tatum's recognized gain?

a.$50,000

b.$0

c.$100,000

d.$150,000

Explanation

Rule: Per IRC Section 1031, non-recognition treatment is accorded to a like-kind exchange of property used in a trade or business. “Like-kind” exchanges include exchanges of business property for business property, where like-kind is interpreted very broadly and refers to the nature or character of the property and not to its grade or quality.

Choice “a” is correct. The exchange in this question qualifies for Section 1031 treatment since the exchange appears to be business property for business property. However, the boot involved in the exchange (the mortgages) must be taken into account to determine the recognition or non-recognition of the gain realized on the exchange. In this transaction, the total consideration received by Tatum is the FMV of the property received of $350,000 plus the mortgage of $120,000 that was assumed by the other party, for a total of $470,000. The adjusted basis of the property given up was $250,000, and there is also $70,000 of mortgage given up by the other party (and assumed by Tatum), for a total of $320,000. The realized gain is thus $470,000 – $320,000 = $150,000. The recognized gain will be the lesser of realized gain or net boot received. The $120,000 of mortgage given up (and assumed by the other party) is treated as boot received, and the $70,000 of mortgage assumed is treated as boot given up. The net is $50,000 of boot received. The $50,000 of boot received is the recognized gain. The treatment is somewhat the same as if cash/boot had been received in the transaction.

---

Here is my calculations:

For all of the Becker MCQ's before this question, the Amount Realized

= Fair Value of new asset + Boot Paid – Boot Received – (Adjusted Basis of asset given up)

= 350,000 + 120,000 – 70,000 – (250,000) = $150,000 gain realized

Gain/Loss Recognized

= the lessor of gain realized ($150,000) or net relieft from liabilities (or boot received) ($120,000 – 70,000 = $50,000)

I got the same answer as Becker, but the way they determined the FV of the new asset and the Adjusted basis of the asset given up is different that my calculations above. They have the $70,000 mortgage added to the basis of the old asset instead of subtracting as boot received to the FV of the new asset like all of their other MCQs.

Can someone explain Becker's reasoning in this? If you have Becker it's MCQ #59 in Chapter 1 of the Capital Gains MCQ's. If you look at question 58 before it, you'll see that the calculations are different.

Becker, Wiley Test Bank, and Ninja 10 Point Combo!

FAR: 89
REG: 87
AUD: 92
BEC: 75
Ethics: 90

Licensed Arizona CPA

[MrsBing]

I feel like I already asked this question, but I did a search and couldn't find anything. This is from Becker chapter 1. Like kind exchanges. My question is at the very bottom.

In the current year, Tatum exchanged farmland for an office building. The farmland had a basis of $250,000, a fair market value (FMV) of $400,000, and was encumbered by a $120,000 mortgage. The office building had an FMV of $350,000 and was encumbered by a $70,000 mortgage. Each party assumed the other's mortgage. What is the amount of Tatum's recognized gain?

a.$50,000

b.$0

c.$100,000

d.$150,000

Explanation

Rule: Per IRC Section 1031, non-recognition treatment is accorded to a like-kind exchange of property used in a trade or business. “Like-kind” exchanges include exchanges of business property for business property, where like-kind is interpreted very broadly and refers to the nature or character of the property and not to its grade or quality.

Choice “a” is correct. The exchange in this question qualifies for Section 1031 treatment since the exchange appears to be business property for business property. However, the boot involved in the exchange (the mortgages) must be taken into account to determine the recognition or non-recognition of the gain realized on the exchange. In this transaction, the total consideration received by Tatum is the FMV of the property received of $350,000 plus the mortgage of $120,000 that was assumed by the other party, for a total of $470,000. The adjusted basis of the property given up was $250,000, and there is also $70,000 of mortgage given up by the other party (and assumed by Tatum), for a total of $320,000. The realized gain is thus $470,000 – $320,000 = $150,000. The recognized gain will be the lesser of realized gain or net boot received. The $120,000 of mortgage given up (and assumed by the other party) is treated as boot received, and the $70,000 of mortgage assumed is treated as boot given up. The net is $50,000 of boot received. The $50,000 of boot received is the recognized gain. The treatment is somewhat the same as if cash/boot had been received in the transaction.

---

Here is my calculations:

For all of the Becker MCQ's before this question, the Amount Realized

= Fair Value of new asset + Boot Paid – Boot Received – (Adjusted Basis of asset given up)

= 350,000 + 120,000 – 70,000 – (250,000) = $150,000 gain realized

Gain/Loss Recognized

= the lessor of gain realized ($150,000) or net relieft from liabilities (or boot received) ($120,000 – 70,000 = $50,000)

I got the same answer as Becker, but the way they determined the FV of the new asset and the Adjusted basis of the asset given up is different that my calculations above. They have the $70,000 mortgage added to the basis of the old asset instead of subtracting as boot received to the FV of the new asset like all of their other MCQs.

Can someone explain Becker's reasoning in this? If you have Becker it's MCQ #59 in Chapter 1 of the Capital Gains MCQ's. If you look at question 58 before it, you'll see that the calculations are different.

Becker, Wiley Test Bank, and Ninja 10 Point Combo!

FAR: 89
REG: 87
AUD: 92
BEC: 75
Ethics: 90

Licensed Arizona CPA

[Heidi-O]

MrsBing: I think they just made it more confusing by trying to break it into two steps: Calculating the gain realized and then Calculating the net Boot Received.

You calculated it in one step because you understand the concept that two parties who exchanged debt (the 70,000 and the 120,000) net the debt to determine whether there was Boot Paid or Boot Received. Go with what you know and what works for you.

Even if we threw in another asset, like say, a cow, you would have added that to your calculation as another part of Boot Paid or Boot Received (depending on who gave up the cow – poor Bessy).

You have it all in one step. You understand to net the liabilities (to determine whether it is paid boot or received boot) and that you look at the lesser of Gain Realized or Boot Received to determine the Gain Recognized. Run with it!

Just Remember:

Boot Received = Cash Rec'd + FMV of Non-like kind property Recv'd + Net relief from Liability

Boot Paid = Cash Paid + FMV of Non-like kind property given + Net Liability Assumed.

Hope this helps!! 🙂

FAR Aug 2012 79
AUD Oct 2012 84
REG Aug 2013 87
BEC Jan 2013 80

[Heidi-O]

MrsBing: I think they just made it more confusing by trying to break it into two steps: Calculating the gain realized and then Calculating the net Boot Received.

You calculated it in one step because you understand the concept that two parties who exchanged debt (the 70,000 and the 120,000) net the debt to determine whether there was Boot Paid or Boot Received. Go with what you know and what works for you.

Even if we threw in another asset, like say, a cow, you would have added that to your calculation as another part of Boot Paid or Boot Received (depending on who gave up the cow – poor Bessy).

You have it all in one step. You understand to net the liabilities (to determine whether it is paid boot or received boot) and that you look at the lesser of Gain Realized or Boot Received to determine the Gain Recognized. Run with it!

Just Remember:

Boot Received = Cash Rec'd + FMV of Non-like kind property Recv'd + Net relief from Liability

Boot Paid = Cash Paid + FMV of Non-like kind property given + Net Liability Assumed.

Hope this helps!! 🙂

FAR Aug 2012 79
AUD Oct 2012 84
REG Aug 2013 87
BEC Jan 2013 80

[hopefulTXcpa]

Ok, so I'm starting to kinda freak out. I haven't been on here in a while and now I'm seeing all these posts about testing the 2013 updated amounts?! They can't possibly expect us to learn all these changes, right? I mean, I know Becker doesn't have any 2013 numbers other than saying like “pending legislation, this number will raise/drop to….” I'm crossing my fingers that on the test they'll let you know certain numbers needed (like “gift exclusion is such-and-such for year such-and-such”)….because there is no possible way that I would be able to cram all of these new numbers into my head before Monday!!!!

(If you can't tell, I'm slightly stressing out!)

FAR - 4/13/13: 82
REG - 7/1/13: 84
BEC - 10/10/13: 79
AUD - 11/25/13: 92
Becker Self Study

Texas CPA 2014

[hopefulTXcpa]

Ok, so I'm starting to kinda freak out. I haven't been on here in a while and now I'm seeing all these posts about testing the 2013 updated amounts?! They can't possibly expect us to learn all these changes, right? I mean, I know Becker doesn't have any 2013 numbers other than saying like “pending legislation, this number will raise/drop to….” I'm crossing my fingers that on the test they'll let you know certain numbers needed (like “gift exclusion is such-and-such for year such-and-such”)….because there is no possible way that I would be able to cram all of these new numbers into my head before Monday!!!!

(If you can't tell, I'm slightly stressing out!)

FAR - 4/13/13: 82
REG - 7/1/13: 84
BEC - 10/10/13: 79
AUD - 11/25/13: 92
Becker Self Study

Texas CPA 2014

[Heidi-O]

@hopefulTXCPA I actually contacted the AICPA and asked them directly. They called me back within 2 days (today) and they sent me an e-mail which ultimately stated (after legal disqualifications of endorsing any CPA exam materials) that their test is “…constructed according to strict specifications… ” it went on to say:

From the AICPA

“We can only reiterate that materials eligible to be tested include federal laws in the window beginning six months after their effective date and uniform acts in the window beginning one year after their adoption by a simple majority of the jurisdictions. We do not test (or expect candidates to memorize or know) amounts that change often with inflation or otherwise. We test concepts and the application of concepts. If rates or tables are needed for a question of problem, we provide them. Changes to the Internal Revenue Code are tested beginning six months after the effective date.”

I take that to mean, you need to know the theories, how things are applied or are defined by them. Look at the AICPA website and get the newly updated CSO

https://www.aicpa.org/BecomeACPA/CPAExam/ExaminationContent/ContentAndSkills/DownloadableDocuments/CSOs-SSOs-Effective.Jan2013.pdf

It will give you a broad overview of what they are looking for and what they are testing. If you look at the questions in Wiley and Becker, you will see that they are looking at your ability to define what type of transaction it is (like kind property? Sale? Gift? Estate?) and the tax implications of it – what's its basis. What causes the basis to increase or decrease. None of these have to do with amounts, they have to do with understand how its done. True, there are some new tax limits that you have to learn like the 179 amount of 500,000 and the 10% floor for medical expenses (unless one person is over 65, then 7.5%) and you will need to know what the AMT exclusion amounts are and what goes into calculating them.

But you also need to know what constitutes a 5 year MACR and a 7 year MACR and what is deducted using half month, mid quarter and mid year. Can you carry a loss backwards or forwards, and if so – what are the limits? How do you calculate an M1? When does a company have to file their tax return? What goes on K and K1 and what is passed through to the individual? What organizations are pass through organizations?

Everyone on this website is willing to help. And if it makes a difference for you, get the notes from Jeff – I understand that he has them updated.

When your studying with the questions on the simulations (if your using software), use the research tab to find the answers to your questions – even if you know the answers. This will help you build skills in researching for items when you take the exam and could possibly run across something you have no clue at how to handle. That's 40% of the exam right there!

And…. always keep in mind… as many of us have, you can push your test back. Take it when you are ready and comfortable. No one will think any less of you if you do, and the fee to move it is definitely cheaper than paying for a new exam.

FAR Aug 2012 79
AUD Oct 2012 84
REG Aug 2013 87
BEC Jan 2013 80

[Heidi-O]

@hopefulTXCPA I actually contacted the AICPA and asked them directly. They called me back within 2 days (today) and they sent me an e-mail which ultimately stated (after legal disqualifications of endorsing any CPA exam materials) that their test is “…constructed according to strict specifications… ” it went on to say:

From the AICPA

“We can only reiterate that materials eligible to be tested include federal laws in the window beginning six months after their effective date and uniform acts in the window beginning one year after their adoption by a simple majority of the jurisdictions. We do not test (or expect candidates to memorize or know) amounts that change often with inflation or otherwise. We test concepts and the application of concepts. If rates or tables are needed for a question of problem, we provide them. Changes to the Internal Revenue Code are tested beginning six months after the effective date.”

I take that to mean, you need to know the theories, how things are applied or are defined by them. Look at the AICPA website and get the newly updated CSO

https://www.aicpa.org/BecomeACPA/CPAExam/ExaminationContent/ContentAndSkills/DownloadableDocuments/CSOs-SSOs-Effective.Jan2013.pdf

It will give you a broad overview of what they are looking for and what they are testing. If you look at the questions in Wiley and Becker, you will see that they are looking at your ability to define what type of transaction it is (like kind property? Sale? Gift? Estate?) and the tax implications of it – what's its basis. What causes the basis to increase or decrease. None of these have to do with amounts, they have to do with understand how its done. True, there are some new tax limits that you have to learn like the 179 amount of 500,000 and the 10% floor for medical expenses (unless one person is over 65, then 7.5%) and you will need to know what the AMT exclusion amounts are and what goes into calculating them.

But you also need to know what constitutes a 5 year MACR and a 7 year MACR and what is deducted using half month, mid quarter and mid year. Can you carry a loss backwards or forwards, and if so – what are the limits? How do you calculate an M1? When does a company have to file their tax return? What goes on K and K1 and what is passed through to the individual? What organizations are pass through organizations?

Everyone on this website is willing to help. And if it makes a difference for you, get the notes from Jeff – I understand that he has them updated.

When your studying with the questions on the simulations (if your using software), use the research tab to find the answers to your questions – even if you know the answers. This will help you build skills in researching for items when you take the exam and could possibly run across something you have no clue at how to handle. That's 40% of the exam right there!

And…. always keep in mind… as many of us have, you can push your test back. Take it when you are ready and comfortable. No one will think any less of you if you do, and the fee to move it is definitely cheaper than paying for a new exam.

FAR Aug 2012 79
AUD Oct 2012 84
REG Aug 2013 87
BEC Jan 2013 80

[peetree]

My entire wiley practice exam has been business law and it is driving me insane. This is not indicative of how the exam is I hope.

FAR 02/21/13 - 95
REG 07/02/13 - 87
AUD 08/02/13 - 94
BEC 08/30/13 - 85
Ethics Exam - 90

Illinois candidate awaiting his license

Used Becker Self Study | Ninja Audio | Becker Flash Cards | Ninja Notes | Wiley Test Bank

[peetree]

My entire wiley practice exam has been business law and it is driving me insane. This is not indicative of how the exam is I hope.

FAR 02/21/13 - 95
REG 07/02/13 - 87
AUD 08/02/13 - 94
BEC 08/30/13 - 85
Ethics Exam - 90

Illinois candidate awaiting his license

Used Becker Self Study | Ninja Audio | Becker Flash Cards | Ninja Notes | Wiley Test Bank

[gobias]

Peetree! You fell off the face of the earth for a while.

Glad you're back. Good luck with the rest of your tests!

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

[gobias]

Peetree! You fell off the face of the earth for a while.

Glad you're back. Good luck with the rest of your tests!

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

[masterof74s]

I also have terrible testing anxiety! I have found that giving myself 2 full weeks to review before the test definately helps! Come the day before the test I have gone over things so much that I kinda know where I stand as far as what I know and don't know. Don't kill yourself the day before the exam either. I always try to take my tests first thing in the morning. I get up and give myself enough time to go through the material I have concluded are my weaker and need to know areas go through it all once as i eat my breakfast then head off to the testing center. Once I get there I might review one or two things quickly from the car and then I head in hoping to get seating quickly! I have also heard if you eat a piece of chocolate right before you go in that helps to calm you down or there is something about blueberries that helps your synapses fire or something lol not sure on that one but my aunt kept telling me to eat blueberries! Jeff's notes definately helped!!! I was just using becker for REG and got in the 50s, not desireable!! this time around I did becker and Jeff's notes and got a 74 so I mean that was a substantial improvement in my score, too bad I couldn't have just gotten that one point!!!

Sorry I still have to jump back to this question, this is giving me some anxiety…. Using 2012 rules when calculating AMT the medical deduction is anything over 10% and the itemized deduction clearly uses 7.5% so this creates a difference when calculating AMT. Looking at the new 2013 rules the itemized deductions for medical expenses are 10% (unless over 65) so would that therefore mean when calculating AMT there would no longer be a difference between AMT medical expenses and itemized deductions medical expenses?

AUD - 68, 74, 76 - DONE
BEC - 78 - DONE
REG - 52, 74, 74, 63, 74
FAR - 68, 78 - DONE

[masterof74s]

I also have terrible testing anxiety! I have found that giving myself 2 full weeks to review before the test definately helps! Come the day before the test I have gone over things so much that I kinda know where I stand as far as what I know and don't know. Don't kill yourself the day before the exam either. I always try to take my tests first thing in the morning. I get up and give myself enough time to go through the material I have concluded are my weaker and need to know areas go through it all once as i eat my breakfast then head off to the testing center. Once I get there I might review one or two things quickly from the car and then I head in hoping to get seating quickly! I have also heard if you eat a piece of chocolate right before you go in that helps to calm you down or there is something about blueberries that helps your synapses fire or something lol not sure on that one but my aunt kept telling me to eat blueberries! Jeff's notes definately helped!!! I was just using becker for REG and got in the 50s, not desireable!! this time around I did becker and Jeff's notes and got a 74 so I mean that was a substantial improvement in my score, too bad I couldn't have just gotten that one point!!!

Sorry I still have to jump back to this question, this is giving me some anxiety…. Using 2012 rules when calculating AMT the medical deduction is anything over 10% and the itemized deduction clearly uses 7.5% so this creates a difference when calculating AMT. Looking at the new 2013 rules the itemized deductions for medical expenses are 10% (unless over 65) so would that therefore mean when calculating AMT there would no longer be a difference between AMT medical expenses and itemized deductions medical expenses?

AUD - 68, 74, 76 - DONE
BEC - 78 - DONE
REG - 52, 74, 74, 63, 74
FAR - 68, 78 - DONE

[Heidi-O]

@ Masterof74s _ I'm off to the store buy their entire stock of blue berries!! And chocolate… well that's just my daily regimental eating habits!!

I researched on CCH the AMT Adjustments for 2013, it only states 10% for medical deductions. So… I am not 100% certain, but I feel that the test wouldn't ask a question like this, but they might – for anyone (married couple) under age 65 – use their full medical expense deduction as an adjustment (since it is now 10%). For anyone who is married and one spouse is 65 – you will need to Increase their medical expense deduction from 7.5% to 10% to calculate the Adjustment.

How many pages are Jeff's notes? I'm asking because I am up to 62 pages of typed notes for myself – his may be easier for me before the exam.

FAR Aug 2012 79
AUD Oct 2012 84
REG Aug 2013 87
BEC Jan 2013 80

[Author]

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