Question 1

If a taxpayer exchanges like-kind property under § 1031 and assumes a liability associated with the property received, the taxpayer is considered to have given boot in the transaction.

Accepted Answer

When a taxpayer exchanges like-kind property under § 1031 and assumes a liability associated with the property received, the taxpayer is considered to have given boot in the transaction. Boot refers to any property or cash that is not like-kind to the property being exchanged, and it can trigger taxable gain in a § 1031 exchange.

Question 2

A condemned office building owned and used in the business by a taxpayer can be replaced by land and qualify for nonrecognition treatment.

Accepted Answer

According to the tax code (Section 1033), if a taxpayer's property is destroyed or condemned, they may be able to defer the recognition of any gain if they replace the property with similar property within a designated period of time. This includes the replacement of an office building with land.

Question 3

The amount realized does not include any amount received by the taxpayer that is designated as severance damages by both the government and the taxpayer.

Accepted Answer

The statement is true. The amount realized excludes any amount designated as severance damages by both the government and the taxpayer.

Question 4

Section 1033 (nonrecognition of gain from an involuntary conversion) applies to both gains and losses.

Accepted Answer

Section 1033 primarily addresses the nonrecognition of gain for involuntary conversions, not losses. It allows taxpayers to defer recognition of gain if they reinvest the proceeds into similar property, but it does not specifically apply to losses in the same way.

Question 5

The surrender of depreciated boot (fair market value is less than adjusted basis) in a like-kind exchange can result in the recognition of loss.

Accepted Answer

Surrendering a depreciated boot in a like-kind exchange can result in the recognition of loss. This is because the adjusted basis of the boot will be higher than its fair market value, and any loss will need to be recognized for tax purposes.

Question 6

The basis of boot received in a like-kind exchange is its fair market value, unless the realized gain is a smaller amount.

Accepted Answer

The basis of boot received in a like-kind exchange is its fair market value, regardless of the realized gain amount.

Question 7

If boot in the form of cash is given in a § 1031 like-kind exchange, the realized gain may be recognized.

Accepted Answer

The answer of If boot in the form of cash...

Question 8

An exchange of business or investment property for like-kind property with a § 267 related party cannot qualify as a § 1031 like-kind exchange.

Accepted Answer

The answer of An exchange of business or investment property...

Question 9

If boot is received in a § 1031 like-kind exchange, the recognized gain cannot exceed the realized gain.

Accepted Answer

This is correct as per the rules of a § 1031 like-kind exchange. Boot can trigger recognized gain, but it cannot exceed the realized gain.

Question 10

Leta has a fiscal tax year which ends on June 30th. Her factory building is destroyed by a fire on October 12, 2012. Two months later, she receives insurance proceeds large enough to produce a realized gain. In order to elect § 1033 postponement, Leta must acquire qualified replacement property by December 31, 2014.

Accepted Answer

The answer of Leta has a fiscal tax year which...

Question 11

An involuntary conversion results from the destruction (complete or partial), theft, seizure, requisition or condemnation, or the sale or exchange under threat or imminence of requisition or condemnation of the taxpayer's property.

Accepted Answer

This is the definition of an involuntary conversion as stated in the IRS.

Question 12

Under the taxpayer-use test for a § 1033 involuntary conversion, the taxpayer has less flexibility in qualifying replacement property than under the functional-use test.

Accepted Answer

The answer of Under the taxpayer-use test for a §...

Question 13

A building located in Virginia (used in business) exchanged for a building located in France (used in business) cannot qualify for like-kind exchange treatment.

Accepted Answer

Under U.S. tax law, properties involved in a like-kind exchange must be located within the United States to qualify for like-kind exchange treatment.

Question 14

Milt's building which houses his retail sporting goods store is destroyed by a flood. Sandra's warehouse which she is leasing to Milt to store the inventory of his business also is destroyed in the same flood. Both Milt and Sandra receive insurance proceeds that result in a realized gain. Sandra will have less flexibility than Milt in the type of building in which she can invest the proceeds and qualify for postponement treatment under § 1033 (nonrecognition of gain from an involuntary conversion).

Accepted Answer

The answer of Milt's building which houses his retail sporting...

Question 15

An exchange of two items of personal property (personalty) that belong to different general business asset classes qualifies for nonrecognition under § 1031 as long as both properties are used in the taxpayer's trade or business.

Accepted Answer

Section 1031 of the Internal Revenue Code allows for the deferral of capital gains taxes on the exchange of like-kind property used in a trade or business or held for investment. However, it specifically excludes exchanges of inventory, stocks, bonds, notes, other securities, partnership interests, and certificates of trust. Personal property must be of the same general asset or product class to qualify as like-kind.

Question 16

If boot is received in a § 1031 like-kind exchange that results in some of the realized gain being recognized, the holding period for both the like-kind property and the boot received begins on the date of the exchange.

Accepted Answer

The holding period for the like-kind property received in a § 1031 exchange tacks onto the holding period of the property exchanged (i.e., it continues from the original property's holding period), whereas the holding period for the boot received begins on the date of the exchange.

Question 17

Terry exchanges real estate (acquired on August 25, 2006) held for investment for other real estate to be held for investment on September 1, 2012.None of the realized gain of $10,000 is recognized, and Terry's adjusted basis for the new real estate is a carryover basis of $80,000.Consequently, Terry's holding period for the new real estate begins on August 25, 2006.

Accepted Answer

This is correct according to the rules of like-kind exchanges under section 1031 of the Internal Revenue Code. The holding period for the new property starts on the date the original property was acquired, which in this case is August 25, 2006.

Question 18

Pat owns a 1965 Mustang car which he uses for personal use.He purchased it four years ago for $22,000, and it currently is worth $27,000.He exchanges it for a 1979 Triumph Spitfire convertible worth $27,000.Pat's recognized gain is $0 and his adjusted basis for the convertible is $22,000.

Accepted Answer

The answer of Pat owns a 1965 Mustang car which...

Question 19

Pierce exchanges an asset (adjusted basis of $14,000; fair market value of $18,000) for another asset (fair market value of $15,000).In addition, he receives cash of $3,000.If the exchange qualifies as a like-kind exchange, his recognized gain is $3,000 and his adjusted basis for the property received is $17,000 ($14,000 + $3,000 recognized gain).

Accepted Answer

If the exchange qualifies as a like-kind exchange, Pierce's recognized gain would be zero and his adjusted basis for the property received would be $15,000 ($18,000 - $3,000 cash received). Like-kind exchanges allow for the deferral of gain recognition until the newly acquired property is sold.

Question 20

Shari exchanges an office building in New Orleans (adjusted basis of $700,000) for an apartment building in Baton Rouge (fair market value of $900,000).In addition, she receives $100,000 of cash.Shari's recognized gain is $100,000 and her basis for the apartment building is $800,000 ($700,000 adjusted basis + $100,000 recognized gain).

Accepted Answer

Shari's recognized gain is $300,000, which is the lesser of the gain realized ($300,000, calculated as the fair market value of the apartment building plus cash received [$900,000 + $100,000] minus the adjusted basis of the office building [$700,000]) or the boot received ($100,000). However, the correct calculation for the basis of the new property is the fair market value of the apartment building ($900,000) minus the gain not recognized ($200,000, which is the gain realized minus the boot received) or plus the loss if realized, which results in a basis of $700,000 for the apartment building, not $800,000.

Quiz 13: A: Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 1