Like-Kid Exchange Flashcards
(14 cards)
What types of property qualify for a Section 1031 like-kind exchange?
Real property (land, buildings, etc.) located in the U.S. held for investment or business use. Personal property and primary residences do NOT qualify
What does “like-kind” mean in a 1031 exchange?
Properties must be of the same nature or character (e.g., office building for farmland), not necessarily the same grade or quality
What triggers taxable gain in a like-kind exchange?
Receiving cash or “boot” (non-like-kind property) triggers taxable gain
What are the key deadlines in a 1031 exchange?
Replacement property must be identified within 45 days and the exchange completed within 180 days
How do you calculate realized gain in a like-kind exchange?
Realized gain = Fair Market Value (FMV) of property received − Adjusted Tax Basis (ATB) of property given up
When is gain recognized (taxed) in a 1031 exchange?
Only if boot (cash or non-like-kind property) is received; recognized gain equals the amount of boot received
How is the basis of the new property determined in a fully deferred exchange?
New basis = ATB of old property (preserves deferred gain)
How is the basis adjusted if boot is received?
New basis = ATB of old property + gain recognized − boot received.
Can depreciation recapture apply in a 1031 exchange?
Yes, even in deferred exchanges, depreciation recapture may still apply.
What is required for the holding period of replacement property in a 1031 exchange?
The replacement property must be held for investment or business use; personal use voids the exchange
If Taxpayer A exchanges a rental property (FMV $100,000, ATB $60,000) for Taxpayer B’s commercial building (FMV $100,000, ATB $70,000) with no boot, what is the result?
Both taxpayers defer their realized gains ($40k for A, $30k for B); taxes are postponed until the new property is sold in a taxable transaction.
What happens if Taxpayer A receives $10,000 cash (boot) in the exchange?
$10,000 gain is recognized and taxed immediately; new basis = $60,000 + $10,000 = $70,000
What are common pitfalls to avoid on the CFP exam regarding 1031 exchanges?
Assuming primary residences qualify (they do not), forgetting to adjust the basis of the new property, and misapplying depreciation recapture rules
What deadlines must be memorized for the exam?
The 45-day identification and 180-day exchange deadlines
