Tax-free exchanges avoid COD income in workouts
Article Abstract:
The like-kind exchange under Sec. 1031 is a useful but often ignored technique for preventing taxation on property dispositions. This section enables a taxpayer to exchange most real and personal property held for business or investment use without recognition of gain or loss. Commonly used in robust economies when real estate prices are rising, the like-kind exchange can actually be employed in avoiding cancellation of debt income in relation to debt workouts when real estate prices are in decline. To qualify under Sec. 1031, the asset must be swapped only for property of a like kind that is also allocated for business or investment use. In the realm of real estate, all real property are considered like kind with other real property. An exchange that leads to the receipt of non-like-kind property gives rise to a 'boot,' which does not disqualify the exchange from favorable tax treatment. It is taxable to the recipient when the boot results in gain.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1996
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Structuring of an exchange of property to defer recognition of gain
Article Abstract:
Section 1031 of the Internal Revenue Code allows property owners to transact tax-free exchanges of property, as long as the exchange does not result in a "boot" of tax basis. The taxation of the gain from the property exchange is deferred indefinitely, until cash from the property has been received. Certain types of property are excluded from this tax-free exchange provision, including stock in trade, bonds, negotiable instruments, corporate stocks, partnership interests, certificates of trust, beneficial interests and closes in action. How to structure and account for a Section 1031 property exchange are detailed, as are the new rules affecting such property exchanges under the Tax Reform Act of 1986.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1986
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Actions a taxpayer can take to obtain capital gains on realty dispositions
Article Abstract:
The accurate structuring of a real estate transaction will result in a minimal tax impact on the property's sale. The specifics of the transaction will be examined by the Internal Revenue Service, as will the actions of the taxpayer both before and after the transaction. The taxpayer's ongoing investment plans and business activities will be examined by the tax agency. The courts have developed new factors that can be used to evaluate the status of the seller when real estate constituted the taxpayer's business or trade.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1986
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