Question 1

Eva exchanges a pick-up truck that she has held for personal use plus $19,000 for a new pick-up truck which she will use exclusively in her sole proprietorship business.This exchange qualifies for nontaxable exchange treatment.

Accepted Answer

The exchange of a personal use property for a business use property does not qualify for nontaxable exchange treatment. The $19,000 amount paid may also trigger taxable gain or loss.

Question 2

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 unimproved real property for improved real property can qualify as a like-kind exchange if the properties are both held for investment or productive use in a trade or business. The fact that they are located in different cities does not disqualify them from being like-kind.

Question 3

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

Accepted Answer

This is true as per the rules of a § 1031 like-kind exchange. The boot received can create taxable gain to the extent of the realized gain but not more than that.

Question 4

In a nontaxable exchange,the replacement property is assigned a carryover basis.

Accepted Answer

In a nontaxable exchange, the basis of the replacement property is the same as the basis in the property exchanged, often called a "carryover basis." This means that any gains or losses from the original property are deferred until the replacement property is sold.

Question 5

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 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 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.

Question 7

Jena owns land as an investor.She exchanges the land for a warehouse in which she will store the inventory of her business.The exchange doesqualify for like-kind exchange treatment.

Accepted Answer

The exchange of Jena's land for a warehouse that she will use for her business qualifies as a like-kind exchange, as both properties are real property used for business purposes.

Question 8

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 9

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 10

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 11

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 12

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

Accepted Answer

In a nontaxable exchange, recognition of the gain or loss is postponed until a taxable event occurs (such as a sale of the newly acquired property). In a tax-free transaction, such as a like-kind exchange, the nonrecognition of gain or loss is permanent as long as certain requirements are met.

Question 13

Abby exchanges 3,000 shares of Osprey,Inc.,stock for 1,500 shares of Blue Heron,Inc.,stock.Abby's adjusted basis for the Osprey stock is $270,000 and the fair market value of the Blue Heron stock is $300,000.Abby's recognized gain is $0 and her adjusted basis for the Blue Heron stock is $270,000.

Accepted Answer

When assets are exchanged, the recognized gain or loss is typically calculated based on the fair market value of both assets. Therefore, in this scenario, Abby's recognized gain should be $30,000 ($300,000 fair market value of Blue Heron stock minus $270,000 adjusted basis of Osprey stock). This means the adjusted basis for the Blue Heron stock should be $300,000, not $270,000.

Question 14

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 15

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 16

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

A loss can be recognized if the fair market value of the relinquished property in a like-kind exchange is less than its adjusted basis. This is known as a "loss boot."

Question 17

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 exchange does not qualify as a like-kind exchange because the fair market value of the asset received (15,000) is less than the fair market value of the asset given up (18,000). Therefore, Pierce will need to recognize a capital gain on the exchange equal to the difference between the fair market value of the property given up ($18,000) and its adjusted basis ($14,000), which is $4,000. His adjusted basis for the property received will be $15,000.

Question 18

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

Accepted Answer

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

Question 19

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 20

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...

Quiz 15: Property Transactions: Nontaxable Exchanges