Basis And The Tax Consequences Of The Dispositions Of Property: property transactions, non-taxable exchanges Flashcards
Like kind exchanges, section 1031, provides for non-taxable exchange treatment if the following requirements are satisfied
- Form of the transaction is an exchange.
- Both the real property transferred, and the real property received our held either for productive use in a trade or business or for investment.
- The property is domestic real estate for domestic real estate.
What does like kind property mean?
Refer to the nature or character of the property and not too much grade or quality. Only domestic real property qualifies for light time treatment
What is boot?
Property received in an exchange that is not like kind property
Includes: cash received, liabilities assumed by the other party from the original taxpayer, other non-like kind property, such as personal property received in an exchange involving real property
The receipt of boot will result in what?
Recognition of gain, if there is a realized gain or no recognition, if there is a realized loss
If the boot is appreciated or depreciated property, how is is the gain or loss recognized?
Gain or loss is recognized, to the extent of the difference between the FMV and adjusted basis of the boot as though there had been a sale of the property used as boot
If a mortgage is assumed by a buyer that represents boot to who?
The seller
How do you determine the basis of like kind property received?
What is the holding period of the real property received in a like kind exchange
Holding period of the real property surrendered in the exchange carries over and adds to the holding period of the real estate received
When does Boot’s period start?
Starts from the date of exchange and is not considered a carryover holding.
Exchange with a related party taxpayer and related party must not dispose of real estate received in the exchange within how many years following the exchange
Two years except for death and involuntary conversions
What is a section 1033 involuntary conversion?
Results from the destruction (complete or partial), theft, seizure, requisition, condemnation, or sale or exchange under threat or imminence of requisition or condemnation of the taxpayers property
What does section 1033 involuntary conversions allow a taxpayer to do?
Allows a taxpayer who occurs and involuntary conversion to postpone recognition of gain realized from the conversion
Only applies to gains not losses
Under section 1033 involuntary conversions what are the rules for non-recognition
If the amount reinvested in replacement property equals or exceeds the amount realized, the realize gain is not recognized
The amount reinvested in replacement property is less than the amount realized, the realized gain is recognized to the extent proceeds, not reinvested
In a section 1033 in voluntary conversions, what is the requirement for the replacement property and what to test apply?
The replacement property must be similar in service or use to the involuntary converted property
For an owner user , the functional test applies, and for an owner investor, the taxpayer use test applies
Section 1033 involuntary conversions what is the functional use test
For owner users
The taxpayers use of the replacement property and of the involuntary converted property must be the same
Section 1033 in voluntary conversions what is the taxpayer use test?
For an owner investor
Owner investors properties must be used in similar endeavors as the previously held properties
Section 1033 involuntary conversions what is the time limitation on replacement property?
Taxpayer has two-year period from the end of the taxable year in which any gain is realize from the involuntary conversion to replace the property
Condemnation of real property used in a trade or business or held for investment has a three year period
Sale of a personal residence gives a universal exclusion of up to what amounts for single and married couples
$500,000 MFJ
$250,000 Single
Home must have been owned and used as a principal residence for at least two years of the five years before the sale (does not have to be consecutive years)
Either spouse can meet the ownership requirement, must meet the use requirement
Fails to meet the ownership and use test. Taxpayer may be entitled to a partial exclusion based on the shorter of either use or ownership.
Gloria, a single taxpayer, sold her condominium in Seattle because she has a new job in Detroit. On the sale date she had on the condo for only 18 months. Gloria failed to meet both the use and ownership test because of a change in employment, so she receives a partial exclusion. What is the exclusion amount?
(Months lived in / 24 months) x Exclusion amount
(18 / 24) x $250,000 = $187,500
Mary and Wallace get married, and Wallace moves into the house that Mary has been using as her principal residence for six years. Nine months later, Wallace gets a big promotion and the newlyweds moved to another city. They realize a $700,000 gain on the sale of their residence meets both the ownership and use test. She gets a full exclusion of $250,000. Wallace does not meet the ownership test (because his wife did), but he is held to the use test. He is only been there nine months, so what is their total exclusion?
Wallace does not meet the use Test, so is his exclusion is
(9 / 24) x $250,000 = $93,750
Mary get full exclusion because she meets the ownership and use test $250,000
So total exclusion is $250,000 + $93,750 = $343,750
Are losses for a personal residence recognized
No
A surviving single spouse qualifies for up to $500,000 exclusion if the sale occurs no later than what?
Two years after the other spouses death
