Under the like-kind exchange rules, when like-kind property is traded for like-kind property, a loss on a trade-in is:
A)recognized and treated as a capital loss.
B)recognized and treated as an ordinary loss.
C)not recognized and increases the basis of the replacement property.
D)not recognized and decreases the basis of the replacement property.
E)none of the above.

Question

Quizplus · Accepted Answer

The like-kind exchange rules allow taxpayers to defer recognition of gains and losses on the exchange of property of like-kind. A loss on a trade-in is not recognized, and the basis of the replacement property is increased by the amount of the loss. This means that the taxpayer does not get an immediate tax benefit from the loss, but it can be used to offset any future gain on the replacement property.

Under the Like-Kind Exchange Rules, When Like-Kind Property Is Traded