CPA Regulation (REG) : Like Kind Exchanges
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Example Questions
Example Question #1 : Taxation Of Property Transactions
A taxpayer owned land with a basis of $120,000, subject to a mortgage of $75,000. The taxpayer exchanged the land held for another parcel of land with a fair market value of $200,000 plus cash of $35,000, and the taxpayer was relieved of the mortgage on the relinquished land. The transaction qualified for like-kind exchange treatment. What amount of taxable gain will be recognized on the taxpayer's tax return for this exchange?
$35,000
$190,000
$115,000
$110,000
$110,000
The taxpayer’s realized gain is $190,000 ($200,000 FMV of building + $35,000 cash + $75,000 mortgage relief - $120,000 basis in property exchanged). Total boot received is $110,000 ($35,000 cash + $75,000 mortgage relief). In like-kind exchange transactions where boot is received, the gain recognized is the lesser of the realized gain ($190,000) or the boot received ($110,000), and here the lesser is the $110,000 of boot.
Example Question #221 : Cpa Regulation (Reg)
In a “like-kind” exchange of an investment asset for a similar asset that will also be held as an investment, no taxable gain or loss will be recognized on the transaction if both assets consist of:
Convertible preferred stock
Rental real estate located in different states
Convertible debentures
Partnership interests
Rental real estate located in different states
To qualify for like-kind exchange treatment, both properties must be real property for business or investment. Only the rental real estate meets this criteria.
Example Question #222 : Cpa Regulation (Reg)
Savage exchanged business-use real property having an original cost of $100,000 and accumulated depreciation of $30,000 for business-use real property owned by Cantor having a fair market value of $80,000 plus $1,000 cash. Cantor assumed a $2,000 outstanding debt on the real property. What taxable gain should Savage recognize?
$11,000
$3,000
$0
$10,000
$3,000
Savage’s realized gain is $13,000 ($80,000 FMV of property + $1,000 cash + $2,000 debt relief - $70,000 basis in property exchanged). Total boot received is $3,000 ($1,000 cash + $2,000 debt relief). In like-kind exchange transactions where boot is received, the gain recognized is the lesser of the realized gain ($13,000) or the boot received ($3,000), and here the lesser is the $3,000 of boot.
Example Question #223 : Cpa Regulation (Reg)
In a like kind exchange of an investment asset for a similar asset that will also be held as an investment, no taxable gain or loss will be recognized on the transaction if both assets consist of:
Rental real estate located in different states
Convertible preferred stock
Partnership interests
Convertible debentures
Rental real estate located in different states
No taxable gain or loss will be recognized on a like kind exchange if both assets are real estate property. Rental real estate located in different states qualifies for a like kind exchange.
Example Question #224 : Cpa Regulation (Reg)
An individual entered into several exchanges during the current tax year. Which of the following exchanges is classified as like kind?
Apartment building for unimproved land
Manufacturing equipment for factory building
Partnership interest for partnership interest
Common stock for common stock
Apartment building for unimproved land
Real property exchanged for other real property will be classified as a like kind exchange.
Example Question #225 : Cpa Regulation (Reg)
If both assets in a like-kind exchange transaction are ________, no taxable gain or loss will be recognized.
Real estate property
Convertible stock
Warrants
Interest in a legal entity
Real estate property
Real estate qualifies as an asset for a like-kind exchange. Thus, no taxable gain or loss will be recognized.
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