Boot and Gain Recognition Flashcards
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Read the first 7 Boot and Gain Recognition flashcards as text
The adjusted basis of replacement property in a completed 1031 exchange is generally calculated as:
Answer: The FMV of replacement property minus the deferred (unrecognized) gain
The replacement property's basis equals its FMV minus the still-deferred gain, which effectively carries the built-in gain forward into the new property.
A taxpayer's realized gain on the relinquished property is correctly calculated as:
Answer: Amount realized (sale price less selling costs) minus the adjusted basis of relinquished property
Realized gain equals the amount realized (gross proceeds minus selling costs) less the adjusted basis of the property given up, following standard gain computation rules.
In a fully qualifying 1031 exchange, depreciation recapture under IRC §1250 is:
Answer: Deferred along with the capital gain into the replacement property's basis
A valid 1031 exchange defers both the capital gain and the §1250 depreciation recapture; the unrecognized gain and recapture carry into the replacement property's lower basis.
A taxpayer can eliminate mortgage boot arising from reduced debt on replacement property by:
Answer: Adding cash to the exchange or acquiring replacement property with equal or greater debt
Mortgage boot is neutralized when the taxpayer either contributes additional cash to the exchange or assumes debt on replacement property equal to or exceeding the debt relieved.
Under the boot netting rules, which of the following can directly offset mortgage boot?
Answer: Cash added by the taxpayer into the exchange
Cash contributed by the taxpayer to complete the exchange directly offsets mortgage boot, reducing net boot and the amount of gain recognized.
Which of the following would NOT constitute boot in a 1031 exchange?
Answer: An additional parcel of qualifying like-kind real estate received from the buyer
Like-kind real property received as part of the exchange is not boot; it qualifies for full tax deferral alongside the primary replacement property.
When a taxpayer pays cash boot to the other party (rather than receiving it), the tax consequence to the paying taxpayer is:
Answer: No boot is received by the paying taxpayer, so no gain is triggered by that cash
Boot taxation applies only to boot received; a taxpayer who pays cash into the exchange receives no boot from that payment and therefore triggers no additional gain recognition.