Advanced Federal Income Taxation Gutting Spring 2015
Like Kind Exchanges
– look individually for qualification for a like kind exchange (both parties do not have to qualify for one of them to take it)
– These exchanges fit into §61(a)(3)
o get Gain/Loss realized
o §1001(c) – is it recognized?
o §1031 (like kind exchanges section) is another reason not to recognize gain/loss, which is a deferral provision
§1031 – four aspects must be met
1. exchange requirement (NOT a sale)
2. Like Kind requirement
a. §1.1031a-1(b)
b. §1.1031a-1(c)
c. Rev. Rul. 73-476
3. Holding Requirement
a. property giving up – use = trade/business or investment
b. property received – intent = trade/business or investment
4. Solely
a. is there boot?
i. if yes: §1031(b) and §1031(c) come into play; (b) controls gain, (c) controls loss
1. §1031(c) – boot does not allow loss to be recognized (treated just as §1031(a))
2. §1031(b) – must recognize the lesser of (1) boot amount or (2) gain realized
ii. so, what is boot?
1. cash received
2. non like kind property(FMV)
3. liability relieved of (§1.1031(b)-1(c)/§1031(d))
If non like kind property is given by taxpayer:
– §1.1031(a)-(a)(2): Sale/Exchange analysis needed outside scope of §1031 analysis
– the only way to have loss in a §1031 transaction is to give boot that is non like kind which is depreciated (has a built in loss)
Liability Relief Rules
– Net Rule (§1.1031(b)-1(c))
o Net liability relief
o only one party can have liability relief for boot purposes
– Offset Rule
o (a) giving cash or non like kind property cannot be offset by assuming liability (i.e. if a taxpayer receives money or non like kind property, taxpayer cannot offset it by assuming liability of other party)
o (b) cash/non like kind property can be off
roblem Set-up:
– Gain/Loss
o A/R – A/B = G/R [§61(a)(3)]
o §1001(c) – recognize unless reason not to
o §1031(a) – reason not to
§ Exchange [here,…]
§ Like kind property [here,…]
§ holding (t/b or inv)
· gave up (how it was held)
· rcvd (intent on how to hold it)
§ solely (is there boot?)
· $ rcvd
· assumption of liability
o net
o offset
· non like kind property
– New Basis? §1031(d)
o A/B property given up (all property)
o MINUS $ taxpayer received
o MINUS liability taxpayer relieved of
o ADD liability taxpayer assumed
o MINUS loss recognized
o EQUALS New adjusted basis
– Holding Period?
o tack per §1223(1)
o §1031 trumps §267 (if property is held for two years) [in related party transactional]
