PH12ky412

PH12ky412 - CHAPTER 12 NONTAXABLE EXCHANGES Definition-All...

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CHAPTER 12
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NONTAXABLE EXCHANGES Definition-- All exchanges of property which, by statute, result in unrecognized gains and losses. LIKE-KIND EXCHANGES I. EXCHANGES OF "LIKE-KIND" PROPERTY ARE NONTAXABLE - A. Nonrecognition of gains and losses is mandatory. (NOTE: the gains and losses are postponed until a later disposition takes place.) B. Both the property given and the property received must be held for productive use in a trade or business (§162) or for investment (§212). Example --Taxpayer exchanged a ranch for another ranch. He contemplated, but had no concrete plans at the time of the exchange, of eventually making a gift of it to his children. After holding the ranch for a period of nine months for productive use in a trade or business or for investment, the taxpayer made a gift of the ranch to his children. Therefore, the exchange qualified under §1031. Fred S. Wagensen, 74 TC 653 . Example --Taxpayer exchanged her farm for two residential properties. On the same day, taxpayer's two children, who had selected the residences, occupied the two properties as their principal residences. Seven months later the taxpayer made a gift of the two residences to the two children. Since the property received was not held for productive use or for investment, §1031 was not applicable. Dollie H. Click, 78 TC 225 .
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II. DEFINITION OF "LIKE-KIND" PROPERTY - refers to nature or character, not quality or grade. A. Like-kind property is property in the same class 1. Realty - any realty for other realty. 2. Personalty - tangibles a. Must be classified in the same General Business Asset Class (IRS). b. If not classified in a General Business Asset Class, the assets must be classified in the same Product Class (U.S. Dept. of Commerce). 3. Personalty - intangibles a. Property in the exchange must be for the same intangible right (a copyright of a song for a copyright of another song is a like-kind exchange, but a copyright of a song for a copyright of a book is not a like-kind exchange). B. The following items are never like-kind exchanges: a. Exchanges of livestock of different gender. b. Exchanges of realty for personalty or vice versa. c. Exchanges of U.S. realty for foreign realty. d. Exchanges of inventory. e. Exchanges of stocks, bonds, notes, or other securities or evidence of indebtedness. However, exchanges of stock in the same corporation are nontaxable. f. Exchanges of property used outside the U.S. III. RELATED PARTY EXCHANGES -
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A. Gains on like-kind exchanges between related parties are taxable if the property is disposed of within 2 years after the like-kind exchange. The postponed gain is recognized in the year of subsequent disposition. B. This provision does not apply to dispositions due to death, involuntary conversions, or non-tax motivated dispositions. IV.
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This note was uploaded on 10/03/2011 for the course ACCT 412 taught by Professor Crabtree during the Spring '11 term at UNL.

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PH12ky412 - CHAPTER 12 NONTAXABLE EXCHANGES Definition-All...

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