The mechanism for effecting a deferral in a nonrecognition transaction is an adjustment of the replacement asset's basis.

Question

Quizplus · Accepted Answer

When a nonrecognition transaction occurs, such as in a like-kind exchange or involuntary conversion, the recognition of gain or loss is deferred. The mechanism for deferral is through an adjustment of the replacement asset's basis, which is equal to the adjusted basis of the old asset plus any additional cash or liabilities assumed. This adjusted basis will determine the amount of gain or loss that will eventually be realized when the replacement asset is disposed of.

The Mechanism for Effecting a Deferral in a Nonrecognition Transaction