Question 1

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 2

A taxpayer cannot replace property before its condemnation and still qualify for nonrecognition treatment.

Accepted Answer

A taxpayer can replace property before its condemnation and still qualify for nonrecognition treatment under certain conditions, such as meeting the requirements of Section 1033 of the Internal Revenue Code.

Question 3

The basis of boot received in a like-kind exchange is its fair market value.

Accepted Answer

In a like-kind exchange, the basis of the boot received is its fair market value at the time of the exchange.

Question 4

If boot in the form of cash is given in a § 1031 like-kind exchange,the realized gain is not recognized.

Accepted Answer

When boot (cash or other non-like-kind property) is given in a § 1031 like-kind exchange, the realized gain is not recognized, as long as the boot received does not exceed the realized gain.

Question 5

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

The recognized gain would actually be $1,000 ($15,000 - $14,000). Since Pierce received cash in addition to the like-kind property, the transaction is not a fully tax-deferred like-kind exchange under Section 1031. He would need to recognize the gain on the cash portion of the transaction, meaning his recognized gain would be $1,000, not $3,000.

Question 6

If a taxpayer reinvests the net proceeds (amount received - related expenses)received in an involuntary conversion in qualifying replacement property within the statutory time period,the realized gain cannot be recognized.

Accepted Answer

The answer of If a taxpayer reinvests the net proceeds...

Question 7

In a like-kind exchange involving boot,the ceiling on recognized gain is the lower of realized gain or boot received.

Accepted Answer

In a like-kind exchange involving boot, the maximum amount of gain that can be recognized is limited to the lesser of the realized gain or the fair market value of the boot received. This is known as the "ceiling" on recognized gain. Therefore, the statement is true.

Question 8

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

Accepted Answer

The answer of If a taxpayer exchanges like-kind property under...

Question 9

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.

Question 10

The requirements for replacement property in involuntary conversions are generally less restrictive than the requirements in like-kind exchanges.

Accepted Answer

The answer of The requirements for replacement property in involuntary...

Question 11

The holding period of like-kind property received in a like-kind exchange includes the holding period of the property given up.

Accepted Answer

This is true. According to the Internal Revenue Service (IRS), when property is exchanged in a like-kind exchange, the holding period for the newly acquired property includes the holding period of the property given up. This means that taxpayers can continue to defer capital gains taxes on the like-kind property they received in the exchange for as long as they hold it.

Question 12

An exchange of two items of personal property (personality)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

Under § 1031, only exchanges of like-kind real property qualify for nonrecognition, not personal property or property from different asset classes.

Question 13

Under § 1033,a realized gain on an involuntary conversion can be postponed but a realized loss cannot.

Accepted Answer

According to § 1033 of the Internal Revenue Code, a realized gain on an involuntary conversion can be postponed if the taxpayer acquires qualified replacement property within the designated period, but a realized loss cannot be postponed as it is immediately deductible.

Question 14

The exchange of personal use property whose holding period is long-term for other personal use property (e.g. ,trade-in of personal use automobiles)can qualify as like-kind property if the personal use property received is held long term.

Accepted Answer

Personal use property does not qualify for like-kind exchange treatment under IRS rules, which apply to business or investment property.

Question 15

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 16

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 Internal Revenue Code, a condemned property can qualify for nonrecognition treatment if it is replaced with property that is "similar or related in service or use" to the original property. This replacement can include land or other real property improvements that serve the same business purpose as the condemned office building. As long as the replacement property meets the requirements for nonrecognition treatment, the taxpayer may be able to avoid paying taxes on the condemned property's gain.

Question 17

If there is a realized gain on a like-kind exchange,both the receipt of boot and the giving of boot result in part or all of the realized gain being recognized.

Accepted Answer

In a like-kind exchange, only the receipt of boot (non-like-kind property or cash) can trigger recognition of gain, not the giving of boot.

Question 18

To qualify for nonrecognition treatment,an office building destroyed by fire can be replaced with another office building in a different state.

Accepted Answer

According to the IRS rules, nonrecognition treatment is available for a property destroyed by fire, and the property can be replaced in a different geographic location or state.

Question 19

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 per tax laws.

Question 20

An exchange of business or investment property for like-kind property with a § 267 related party can qualify as a § 1031 like-kind exchange.

Accepted Answer

The exchange of business or investment property for like-kind property with a § 267 related party can qualify as a § 1031 like-kind exchange, according to the IRS. However, certain rules and limitations apply, and the transaction must meet all of the requirements of a traditional § 1031 exchange.

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