Taxes: Like-Kind Exchanges & Involuntary Conversions Flashcards Preview

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Flashcards in Taxes: Like-Kind Exchanges & Involuntary Conversions Deck (4)
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1

Taxes
Like-Kind Exchanges & Involuntary Conversions
Like-Kind Exchanges Overview

Like-Kind Exchanges
- deferral if no significant economic change
- Losses are never recognized from like-kind exchange
- Recognized Gain lesser of:
- realized gain
- boot received
- Rules are Mandatory and Not Elective
- Qualifying Property
- only business and investment property
- not inventory or receivables
- must be "like-kind" property
- all realty is considered "like-kind"
- personalty must be within same asset class
- business property can be exchanged for investment property
- 1 inside and 1 outside US is not "like-kind"
- special rules for related taxpayers
- holding period tacks onto like-kind property received.

2

Taxes
Like-Kind Exchanges & Involuntary Conversions
Like-Kind Exchanges & Boot Received

Like-Kind Exchanges & Boot Received
- cash and not "like-kind" property are boot
- mortgage received is boot to extent > mortgage given
- Boot does NOT cause realized losses to be recognized
- Basis Computation:
FMV property received
- postponed gain
+ postponed loss
= Basis of "like-kind" property
*** basis of not "like-kind" property received is FMV***

3

Taxes
Like-Kind Exchanges & Involuntary Conversions
Involuntary Conversions Overview

Involuntary Conversions Overview
- rules are elective
- involuntary conversion of property resulting in a realized gain (only) is eligible for deferral
- NOT LOSSES
- gain generated because asset is destroyed, stolen, or condemned (taken by government)
- may elect if proceeds are reinvested in similar property within reasonable time
- not just business property, everything
- replacement property
- must be similar
- made within TWO YEARS from the END of tax year in which generated
- extended to 3 years for condemned business realty
Calculation of Gain
- adjusted basis is cost - any deferred gain
- holding period of old carries over

4

Taxes
Like-Kind Exchanges & Involuntary Conversions
Involuntary Conversions Calculation

Involuntary Conversions Calculation

amount realized from conversion
- adjusted basis of old property
= realized gain/loss

amount realized from conversion
- cost of replacement property
= recognized gain, limited to realized gain

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