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TA Xes: Transactions in Property: (5) The Basis of Like-Kind Property Received Is The Basis of Like-Kind Property Given

This document summarizes the rules for like-kind exchanges of property under US tax law. It states that real property must be exchanged for real property and personal property for personal property to qualify as a like-kind exchange. It provides examples of qualifying like-kind exchanges. It also discusses rules for identifying and completing the exchange, determining basis of the exchanged properties, and treatment of boot (additional property received or cash in the exchange).

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El Sayed Abdelgawwad
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20 views

TA Xes: Transactions in Property: (5) The Basis of Like-Kind Property Received Is The Basis of Like-Kind Property Given

This document summarizes the rules for like-kind exchanges of property under US tax law. It states that real property must be exchanged for real property and personal property for personal property to qualify as a like-kind exchange. It provides examples of qualifying like-kind exchanges. It also discusses rules for identifying and completing the exchange, determining basis of the exchanged properties, and treatment of boot (additional property received or cash in the exchange).

Uploaded by

El Sayed Abdelgawwad
Copyright
© © All Rights Reserved
Available Formats
Download as RTF, PDF, TXT or read online on Scribd
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MODULE 34 TA.

XES: TRANSACTIONS IN PROPERTY 493

(a) Real property must be exchanged for real property; personal property must be exchanged
for personal property within the same General Asset Class or within the same Product
Class. For example
1] Land held for investment exchanged for apartment building
2] Real estate exchanged for a lease on real estate to run thirty years or more
3] Truck exchanged for a truck

(b) Exchange of personal property for real property does not qualify.
(c) Exchange of US real property for foreign real property does not qualify.
(4) To qualify as a like-kind exchange (1) the property to be received must be identified within
forty-five days after the date on which the old property is relinquished, and (2) the exchange
must be completed within 180 days after the date on which the old property is relinquished,
but not later than the due date of the tax return (including extensions) for the year that the old

property is relinquished. '


(5) The basis of like-kind property received is the basis of like-kind property given.
(a) + Gain recognized
(b) + Basis of boot given (money or property not of a like-kind)
(c) - Loss recognized

(d) - FMVofbootreceived
(6) If unlike property (i.e., boot) is received, its basis will be its FMV on the date of the exchange.
(7) If property is exchanged solely for other like-kind property, no gain or loss is recognized. The
basis of the property received is the same as the basis of the property transferred.

(8) If poot (money or property not of a like-kind) is given, no gain or loss is generally recognized.
However, gain or loss is recognized if the boot given consists of property with a FMV differ-
ent from its basis. .
EXAMPLE: Land heldfor investment plus shares of stock are exchanged for investment real estate with a
FMV of $13,000. The land transferred had an adjusted basis of $10,000 and FMV of $11,000; the stock had
an adjusted basis of $5,000 and FMV of $2,000. A $3,000 loss is recognized on the transfer of stock. The
basis of the acquired real estate is $12,000 ($10,000 + $5,000 basis a/boot given - $3,000 loss recognized).

(9) If boot is received


(a) Any realized gain is recognized to the extent of the lesser of (1) the realized gain, or (2)
the FMV of the boot received

(b) No loss is recognized due to the receipt of boot


EXAMPLE:' Land held for investment with a basis of $10,000 was exchanged for other investment real
estate with a FMV of $9,000, an automobile with a FMVof $2,000, and $1,500 in cash. The realized
gain is $2,500. Even though $3,500 of "boot" was received, the recognized gain is only $2,500 (limited
to the realized gain). The basis of the automobile (unlike property) is its FMV $2,000; while the basis of
the real estate acquired is $9,000 ($10,000 + $2,500 gain recognized - $3,500 boot received).

(10) Liabilities assumed (or liabilities to which property exchanged is subject) on either or both
sides of the exchange are treated as boot.

(a) Boot received-if the liability was assumed by the other party
(b) Boot given-if the taxpayer .assumed a liability on the property acquired
(c) If liabilities are assumed on both sides of the exchange, they are offset to determine the
net amount of boot given or received.
EXAMPLE: A owns investment land with an adjusted basis of $50,000, FMV of $70,000, but which is
subject to a mortgage of $15,000. B owns investment land with an adjusted basis of $60,000, FMVof
$65,000, but which is subject to a mortgage of$10,000. A and B exchange real estate investments with A
assuming B's $10,000 mortgage, and B assuming A 's $15,000 mortgage. The computation of realized
gain, recognized gain, and basis for the acquired real estate for both A and B is as follows:

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