like-kind exchange
non-recognition of gain or loss for exchange of real property in the US used for either investment or T/B
must be real-estate, mandatory
aka Sec 1031a
usually a deferment not an exclusion
like-kind property defined
under 1031a, has to be real estate for real estate
even farmland for apartment buildings count
realized gain = recognized gain except (3) ***
like kind exchange
involuntary conversion
sale of principal residence
what type of like-kind of exchange must occur to count
a direct one i.e. cannot convert proceeds into another subsequent purchase
some exceptions set by IRS when there is a middle man dealer
3-party transaction rules with like-kind exchanges...
if another part involved and exchange is non-simultaneous
still counts if property to be received ID'd within 45 days of giving up prop and is received no later than 180 days after original transfer date
boot
cash or non-like-kind property included in an exchange for a fair transaction
gain recognition rules wrt boot
recognize gain to the extent of the boot received, but not more than amount realized
cannot create a loss
boot treatment in exchange with debt going both ways
net debt value, whoever gets rid of debt is treated as if they received cash i.e. the boot
HP rule for like kind exchange prop and boot
prop =HP of prop given up
boot = HP begins day after exchange
Basis of Prop Received in a Like-Kind Exchange
#REF!
Like-Kind Exchange realized G/L with NO debt
#REF!
Like-Kind Exchange realized G/L WITH debt
[FMV rec] + [Liab given] = [Amt rec]
[Amt rec] - [AB given] - [liab rec] = Realized G/L
what to do if receive liability in a like-kind exchange
Add to the AB of what given
treatment of like-kind exchanges between related parties
disallowed if either party disposes w/in 2 years
gain recognized on disposal
exceptions for death, invol conversion, or for non-tax avoidance purposes
if transfer non-like-kind prop in an exchange and has a G/L...
G/L must be recognized by the person giving it
FMV of non-like asset offsets FMV of prop rec
Must add non-like-kind AB and gain to the AB of the new prop
[read up on topic]
involuntary conversion defn
�Theft, seizure, requisition, condemnation, or destruction.
�Conversion (destruction) may be total or partial.
eminent domain (aka condemnation) also applies
involuntary conversion G/L treatment
those who realize gain due to this can defer recognition if qualifying replacement property is acquired within a sepcified time period at a cost qual or greater to than the amount realized
aka sec 1033
n/a to losses
treatment and defn of severance damages in invol conversion
when receive payments because only portion condemned or value decreases (highway across the street)
reduced AB in prop, if in excess of AB then is a gain
replacement property defn and scenarios (3) with invol conversions
must be similar or related in service or use to the property so converted.
must pass either...
functional test (most common)
like-kind standard
tax-use test
functional use test with involuntary conversions
more strict than like-kind
property must be replaced with prop with same functional use (building for building NOT building for land)
en) can NOT be a movie theater for a roller rink
like kind test application with involuntary conversions
less strict replacement test can be used when if investment or T/B real estate is condemned
taxpayer-use test with involuntary conversions
replacement applies to investment rentals
new prop just has to be rented out (apartment to commercial warehouse)
rules to obtaining replacement prop with invol conversion
must by yourself or by 80% of a corporation that owns the property
time requirements for replacement purchase with invol conversion
replacement must occur within 2 years after the end of the said tax year
3 year exception for condemned real estate held by investment or T/B
gain v boot recognition in invol conversion ****
gain recognized = [ins proceeds] - [ABnew]
ABnew= cost of replacement
ins proceeds = "proceeds
gain realization in invol conversions ***
Amt realized = [ins proceeds] - [ABold]
ABold= cost of original thing getting replaced
deferred gain calc in invol conversion ***
#REF!
basis of replacement property in an involuntary conversion
#REF!
how to defer total realized gain in an involunt conversion
ins proceeds = replacement property cost
sale or principal residence rule
Individuals may exclude up to $250,000 (MFJ $500,000) of realized gain on the sale of a principal residence if they owned and occupied the principal residence in at least two of the preceding five years.
permanent exclusion
can loss be recognized on sale of princ res?
NO
MFJ rules with princ res
analyzed indiv
each wrt use test, only 1 needs to own
how many princ res can a person have?
1
what goes into SP of a princ res
#NAME?
treatment of sale of more than 1 princ res w/in 2 years
portion of gain excluded if because change in employ, health, or unforeseen circumstance
FORMULA of sale of more than 1 princ res w/in 2 years
Portion Excluded = (a/730) * (250k or 500k)
a =lesser of...
1. period own+use test were met in the past 5 years
2. period of time between orig exclusion sale and most recent one)
NOTE apply ratio to entire 250 or 500
non-qual 2008 exception to princ res exclusion
if TP converted their rental real estate to princ res, time in which it was a rental prop since 2008 is gain subject to taxation
depreciation also recognized
invol conversion rules with princ res
gains may be treated under the involuntary conversion rule, gain excl rule, or both