Question 1

A sale of property and subsequent purchase of like-kind property may be treated as a like-kind exchange if the two transactions are interdependent.

Accepted Answer

The tax law does allow for a three-party exchange if structured properly.

Question 2

In its inventory,an art dealer holds a Picasso painting for sale which has appreciated since its acquisition.The art dealer exchanges the Picasso for a Van Gogh painting of similar value.The art dealer will not recognize the gain on the Picasso because of the like-kind exchange provisions.

Accepted Answer

An exchange of inventory does not qualify.

Question 3

If an exchange qualifies as a like-kind exchange,nonrecognition of gain or loss is elective.

Accepted Answer

Like-kind treatment is mandatory if the transaction meets the terms of Section 1031.

Question 4

An investor exchanges an office building located in Niagara Falls,NY,for an office building located in Niagara Falls,Ontario.The exchange does not qualify as like-kind.

Accepted Answer

Transfers of real property in the United States for real property outside the United States are not like-kind.

Question 5

The holding period of like-kind property received in a nontaxable exchange begins on the day of the exchange.

Accepted Answer

The holding period includes the holding period of the like-kind property if that property is a capital asset or 1231 property.

Question 6

The basis of non-like-kind property received is the basis in the hands of the transferor at the date of the exchange.

Accepted Answer

Boot is received at fair market value.

Question 7

An investor in artwork holds a Picasso painting which has appreciated substantially since she purchased it.The art investor exchanges the Picasso for a Van Gogh painting of similar value.The transaction qualifies as a like-kind exchange and the gain will not be recognized.

Accepted Answer

Both the Picasso and the Van Gogh are held for investment purposes and are of like class so the transaction qualifies as a like-kind exchange.

Question 8

The receipt of boot as part of a nontaxable exchange causes a realized loss to be recognized.

Accepted Answer

Receipt of boot will only cause recognition if gain is realized on the underlying exchange.

Question 9

If each party in a like-kind exchange assumes a liability of the other party,only the net liability given or received is boot.

Accepted Answer

The exchange of liabilities is netted to determine which party is deemed to have received boot and which party is deemed to have paid boot.

Question 10

A taxpayer exchanges an office building held as an investment asset for an office building to be used in her business.The exchange will qualify as like-kind.

Accepted Answer

Both the property transferred and the property received must be held either for productive use in a trade or business or for investment.

Question 11

An exchange of inventory for inventory of a like kind qualifies as a like-kind exchange.

Accepted Answer

An exchange of inventory or securities does not qualify as a like-kind exchange.

Question 12

For purposes of nontaxable exchanges,cash and non-like-kind property constitute boot.

Accepted Answer

The addition of cash or non-like-kind property is needed when the qualifying like-kind properties being exchanged are not of equal value.Any cash or other property which is not like-kind is treated as boot.

Question 13

Realized gain or loss must be recognized unless a specific Code section provides for nonrecognition treatment.

Accepted Answer

Unless a provision in the tax law provides an exclusion of gain,a disallowance of loss or a deferral of either,a realized gain or loss will be recognized.

Question 14

Where non-like-kind property other than cash is received as boot,the amount of the boot is the property's fair market value.

Accepted Answer

If non-like-kind property other than cash is received as boot,the amount of the boot is the property's fair market value.

Question 15

The holding period for boot property received begins on the day after the date of the exchange.

Accepted Answer

While the like-kind property may have a carryover holding period,boot received starts a new holding period.

Question 16

The exchange of antiques held for investment purposes for stock in an antiques auction house held as an investment qualifies for like-kind treatment.

Accepted Answer

The two assets are not of "like-kind," and marketable securities do not qualify.

Question 17

All of the following qualify as a like-kind exchange except
A)an apartment building held for investment for a warehouse used in a trade or business.
B)a printer used in trade or business for a computer used in trade or business.
C)improved real estate held for investment for unimproved real estate held for investment.
D)an airplane used in trade or business for a high-rise construction crane used in trade or business.

Accepted Answer

D)Real property used in business or for investment exchanged for any real property qualifies as do computers and peripherals.An airplane and construction equipment are in different general asset classes and are,therefore,not like-kind property.

Question 18

If related taxpayers exchange property qualifying for a like-kind exchange,the properties must be retained for three years after the exchange to prevent recognition of gain resulting from the original exchange on a subsequent disposition of the property.

Accepted Answer

The property must be retained for two years.

Question 19

The exchange of a partnership interest for an interest in another partnership qualifies as a like-kind exchange.

Accepted Answer

Partnership interests,along with inventory and marketable securities,are disqualified assets.

Question 20

Real property exchanged for personal property,both held for productive use in a business,qualifies as a like-kind exchange.

Accepted Answer

An exchange is not like-kind if one class of property is exchanged for another class.

Quiz 28: Property Transactions: Nontaxable Exchanges