Like-Kind Exchanges and Involuntary Conversion Flashcards
How is losses and gains recognized for like-kind exchanges?
L: never recognized.
G: lesser of realized gain or boot received.
What is boot? An example?
Any non-like-kind property received as part of the exchange. Such as liabilities assumed by the other party
What is a like-kind for realty (land and buildings)? For personalty?
Other realty.
Assets that are within the same class.
What are 4 examples of asset classes?
Office furniture, fixtures, and equipment.
Computer equipment.
Automobiles.
Light-duty trucks.
What is a kind of property that like-kind exchange do not apply to? Which kind does it apply to?
Personal-use property.
Apply only to business and investment property.
Can business property be exchanged for investment property?
Yes.
For like-kind exchange, do I need to consider the nature of property (how other party is using it)?
No, only how I will use the new property.
What are examples of non qualifying property?
Inventory.
Partnership interests.
Stocks, bonds, and notes.
Other securities or evidence of indebtedness or interest.
Compute amount realized, gain realized, and gain recognized, and basis for the acquired real estate for both A and B.
A owns land: adjusted basis $50,000, FMV $70,000, a mortgage $15,000.
B owns investment land: adjusted basis $60,000, FMV $65,000, a mortgage $10,000.
A:
FMV of real estate received (65,000) + Boot received (cash received; debt relief) (15,000) - Boot given (cash paid; debts assumed) (10,000) = amount realized on the exchange (70,000) - adjusted basis of old real estate transferred (50,000) = gain realized (20,000).
Gain recognized = difference in boot 15,000-10,000 (this is lesser than 20,000)=5,000.
Basis of old real estate transferred (50,000) + Boot given (cash paid; debt assumed) (10,000) + Gain recognized (5,000) - Boot received (cash received; debt relief) (15,000) = Basis of new real estate acquired (50,000)
B:
70,000+10,000-15,000=65,000-60,000=5,000 (gain realized). However, there is no boot (10,000-15,000) and therefore, gain recognized=$0.
60,000+15,000+0-10,000=65,000(basis).
A exchanged a van with adjusted basis of $20,000 for a new van. The new van had value of $10,000 and A received $3,000 in cash. Adjusted basis for the new van?
Amount realized loss: Van (10,000)+Cash (3,000)-20,000= -7,000. Recognized loss = $0.
FMV of property received (10,000) - Postponed gain (0) + Postponed loss (7,000) = Adjusted basis for the new van (17,000).
What is the basis of non-like kind property received?
FMV.
What is the holding period of like-kind property received?
Holding period of like-kind property surrendered tacks on.
What are examples of involuntary conversion?
Destruction, theft, seizure, condemnation.
Involuntary conversion: When is the gain recognized?
To the extent that replacement property is not “similar or related in service or use”
What is the time limit of replacement for involuntary conversion?
Property must be replaced within 2 yrs AFRER THE CLOSE OF THE TAXABLE Y in which the conversion took place (3 yrs for condemned business or investment real property).
