The tax basis of property acquired in a like-kind exchange must be allocated bet

Question

The tax basis of property acquired in a like-kind exchange must be allocated between land and improvements: a. in the same ratio as used by the previous owner. b. in a ratio that reflects relative market values of land and improvements at the time of the exchange. c. in the same ratio as used for the property tendered in the exchange. d. as specified in the exchange agreement. 8. In a like-kind exchange, gains are: a. recognized in the year of the transaction. b. deferred only if all parties to the transaction qualify for like kind exchange treatment. c. deferred only if neither party has a loss on the transaction. d. recognized to the extent of any "boot" received; the remainder is deferred.

Explanation / Answer

Solution.

i. c. in the same ratio as used for the property tendered in the exchange.

As we know , gain is deferred and not avoided in a like-kind exchange. A taxpayer must calculate and keep track of his or her basis in the new property acquired. The basis of the property acquired is the basis of the property transferred.

ii. d. recognized to the extent of any "boot" received; the remainder is deferred.

If, in addition to receiving like-kind property, the taxpayer receives cash or other property that does not qualify as like-kind property (boot), the taxpayer must recognize gain to the extent of the boot received. The amount of gain recognized is equal to the lesser of the amount of gain realized in the exchange or the sum of the fair market value of the nonqualifying property plus the cash received in the exchange .

Solution.

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