Chapter 12 Property Transactions: Nontaxable Exchanges Learning Objectives Understand the tax consequences arising from a like-kind exchange Determine the basis of property received in a like-kind exchange Learning Objectives Determine whether gain from an involuntary conversion can be deferred Determine the basis of replacement property in an involuntary conversion Determine when a gain resulting from sale of principal residence may be excluded Like-kind Exchanges Like-kind Property Defined Refers to nature and quality Same class Personal property for personal property Real property for real property Certain properties do not qualify for like-kind exchange Like-kind Exchanges A Direct Exchange Must Occur Direct exchange not a conversion into proceeds with a subsequent purchase Certain interdependent transactions may receive exchange treatment Three-party exchange Like-kind Exchanges Three-party Exchanges Three parties may be involved in a simultaneous or non-simultaneous like-kind exchange Finding a suitable exchange property may be difficult Like-kind Exchanges Receipt Of Boot Gain is recognized to extent of boot received, limited by realized gain Loss is never recognized Boot is any non-qualifying property Mortgages are offset to determine if there boot Like-kind Exchanges Basis Of Property Received Basis of property given up less boot received plus gain recognized Basis of non-qualifying property (boot) is the property’s FMV Like-kind Exchanges Exchanges between related parties Transfer of non-like-kind property Holding period Involuntary Conversions Involuntary Conversion Defined Includes theft, seizure, requisition, condemnation, or destruction of property Gains arise when insurance or government proceeds exceed the property’s adjusted basis Severance damages
