Question 1

The exchange of unimproved real property located in Topeka (KS)for improved real property located in Atlanta (GA)does not qualify as a like-kind exchange.

Accepted Answer

The exchange of real property for like-kind property in different locations is allowed under the like-kind exchange rules as long as they are of the same nature or character. Topeka and Atlanta are located in two different states, but they are both real property, so the exchange may qualify as a like-kind exchange.

Question 2

When boot in the form of cash is given in a like-kind exchange,recognized gain is the greater of the boot or the realized gain.

Accepted Answer

Recognized gain in a like-kind exchange when boot is received is the lesser of the realized gain or the amount of boot received, not the greater.

Question 3

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 4

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 5

Lola owns land as an investor.She exchanges the land for a warehouse which she leases to a tenant who uses it to store his business inventory.The exchange does qualify for like-kind exchange treatment.

Accepted Answer

Both the land and the warehouse are real property and therefore qualify for like-kind exchange treatment. The fact that the warehouse is being used for business purposes by a tenant does not affect the qualification for like-kind exchange treatment.

Question 6

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

If the fair market value of the surrendered boot is less than its adjusted basis, then a loss is recognized for tax purposes in a like-kind exchange. This loss can be deducted from other gains or income.

Question 7

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 8

Kate exchanges land held as an investment for land and a building owned by Clark,to be used in her business.If Clark is Kate's father,her realized gain of $150,000 must be recognized because they are related parties.

Accepted Answer

The answer of Kate exchanges land held as an investment...

Question 9

Livestock of different sexes can qualify for like-kind exchange treatment if the livestock has been held for over 24 months.

Accepted Answer

The answer of Livestock of different sexes can qualify for...

Question 10

Gains and losses on nontaxable exchanges are deferred because the tax law recognizes that nontaxable exchanges result in a change in the substance but not the form of the taxpayer's relative economic position.

Accepted Answer

Gains and losses on nontaxable exchanges are deferred because the tax law recognizes that these exchanges do not result in an immediate realization of income or loss, allowing the taxpayer to maintain continuity in their investment without immediate tax consequences. The deferral is related to the continuity of investment, not a change in the substance or form of the taxpayer's economic position.

Question 11

Terry exchanges real estate (acquired on August 25,2010)held for investment for other real estate to be held for investment on September 1,2016.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 25,2010.

Accepted Answer

When real estate held for investment is exchanged for other real estate held for investment, the realized gain can be deferred if certain requirements are met. One of those requirements is that the taxpayer must receive property that is of a like-kind. Additionally, the taxpayer's basis in the new property will generally be the same as the basis in the old property, adjusted for any gain or loss recognized in the exchange. Therefore, in this case, since Terry's realized gain of $10,000 is not recognized and the adjusted basis for the new real estate is a carryover basis of $80,000, Terry's holding period for the new real estate begins on the date the old real estate was acquired, which is August 25, 2010.

Question 12

Cole exchanges an asset (adjusted basis of $15,000;fair market value of $25,000)for another asset (fair market value of $19,000).In addition,he receives cash of $6,000.If the exchange qualifies as a like-kind exchange,his recognized gain is $6,000 and his adjusted basis for the property received is $21,000 ($15,000 + $6,000 recognized gain).

Accepted Answer

The exchange does not qualify as a like-kind exchange because the fair market value of the asset received ($19,000) is less than the fair market value of the asset given up ($25,000). Therefore, Cole must recognize a gain of $10,000 ($25,000 - $15,000 basis) on the exchange, and his basis in the new asset will be $19,000. The cash received is not relevant to the calculation of recognized gain or basis in the new asset.

Question 13

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

Accepted Answer

This statement is true. According to IRS rules for § 1031 exchanges, if you receive "boot" (cash or non-like-kind property) as part of the exchange, you may recognize gain to the extent of the boot received, but not beyond the realized gain on the transaction.

Question 14

The nonrecognition of gains and losses under § 1031 is mandatory for gains and elective for losses.

Accepted Answer

Under § 1031, the nonrecognition of gains and losses is mandatory for both gains and losses when the transaction meets the requirements for a like-kind exchange.

Question 15

In a nontaxable exchange,the replacement property is assigned a carryover basis if there is a realized gain,but receives a new basis if there is a realized loss.

Accepted Answer

In a nontaxable exchange, the replacement property receives a carryover basis regardless of whether there is a realized gain or loss.

Question 16

In a nontaxable exchange,recognition is postponed.In a tax-free transaction,nonrecognition is permanent.

Accepted Answer

In a nontaxable exchange, recognition of gain or loss is typically postponed until the property received in the exchange is sold. However, in a tax-free transaction (such as a like-kind exchange or a reorganization), nonrecognition of the gain or loss is permanent, meaning it will never be recognized for tax purposes.

Question 17

Pat owns a 1965 Ford Mustang 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 Ford Mustang which...

Question 18

To qualify as a like-kind exchange,real property must be exchanged either for other real property or for personal property with a statutory life of at least 39 years.

Accepted Answer

To qualify as a like-kind exchange under Section 1031 of the Internal Revenue Code, real property must be exchanged for other real property of a like kind, which can be used for business or investment purposes. Personal property no longer qualifies for like-kind exchanges after the Tax Cuts and Jobs Act of 2017.

Question 19

Leonore exchanges 5,000 shares of Pelican,Inc. ,stock for 2,000 shares of Blue Heron,Inc. ,stock.Leonore's adjusted basis for the Pelican stock is $300,000 and the fair market value of the Blue Heron stock is $350,000.Leonore's recognized gain is $0 and her adjusted basis for the Blue Heron stock is $300,000.
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Accepted Answer

This is a non-taxable exchange under Section 1031 of the Internal Revenue Code, but Leonore's adjusted basis for the Blue Heron stock would be $350,000 (the fair market value of the Blue Heron stock at the time of the exchange), not $300,000 as stated in the question.

Question 20

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 added to the basis of the like-kind property received, and it does not directly take the fair market value as its basis. The basis adjustment reflects the gain recognized, not the fair market value of the boot.

Quiz 15: Property Transactions Nontaxable Exchanges