CES Cheat Sheet 2026

The 30 highest-yield CES facts, distilled from real exam questions. Print it, save it as a PDF, or study it here — free, no sign-up.

1. How does a 1031 exchange affect state income tax in states that do not conform to federal 1031 rules? → The taxpayer may owe state capital gains tax even if federal gain is deferred
2. A taxpayer has taken $100,000 in depreciation on the relinquished property. How does this affect the adjusted basis? → Adjusted basis decreases by $100,000
3. What is a key element of transaction processing? → Transaction Processing best practice
4. Why must companies submit regular filings to regulators? → To maintain transparency and inform investors
5. Which of the following best describes the 'net boot' concept used in gain recognition calculations? → Boot received minus allowable exchange expenses and any boot paid by the taxpayer
6. A taxpayer's realized gain is zero (no economic gain), yet the taxpayer receives $30,000 in cash boot. How much gain is recognized? → $0, because recognized gain cannot exceed realized gain
7. A taxpayer closes the relinquished property on June 1. Their tax return (with extension) is due October 15. When does the exchange period end? → October 15 (the earlier date)
8. Which of the following property types qualifies as like-kind in a 1031 exchange? → A leasehold interest of 30 or more years
9. Which IRS form is used by a taxpayer to report a like-kind exchange? → Form 8824
10. A taxpayer exchanges a property worth $500,000 for a replacement property worth $450,000 and receives $50,000 in cash. How is the $50,000 treated? → It is treated as boot and is taxable
11. For purposes of gain recognition on a 1031 exchange reported on IRS Form 8824, which line captures the recognized gain that flows to Schedule D or Form 4797? → Line 20 — Gain recognized (lesser of line 15 or line 19)
12. Which of the following is a key due diligence step an exchanger should take when selecting a QI? → Verify the QI carries fidelity bond and errors & omissions insurance
13. Which of the following would create 'mortgage boot' in a 1031 exchange? → Acquiring a replacement property with a lower mortgage than the relinquished property
14. The 95% rule allows a taxpayer to identify any number of properties, but requires that: → At least 95% of the identified properties be acquired
15. What is the consequence if the taxpayer does not close on any identified replacement property within the 180-day exchange period? → The exchange fails and the proceeds are returned to the taxpayer as taxable income
16. What is a key element of risk management & security protocols? → Risk Management & Security Protocols best practice
17. What is the primary tax benefit of completing a successful 1031 exchange? → Deferral of capital gains tax on the sale of investment property
18. What is a key element of risk management & security protocols? → Risk Management & Security Protocols best practice
19. Who is expressly disqualified from serving as a QI under Treasury Regulations? → The taxpayer's attorney who represented them in the last two years
20. Which type of exchange involves two parties directly trading properties with each other? → Two-party direct exchange
21. What document does the QI use to acquire the rights to the relinquished property without taking title? → An assignment agreement
22. Which rule requires immediate reporting of trades? → Real-Time Trade Reporting Rule
23. Must replacement property identification be submitted in writing to qualify under IRC 1031? → Yes, identification must be in writing and signed by the taxpayer
24. Can a taxpayer revoke or change a replacement property identification after the 45-day period has passed? → No, identifications cannot be changed after the 45-day deadline
25. What is a key element of transaction processing? → Transaction Processing best practice
26. In a 1031 exchange involving a multi-asset property (e.g., a motel with furniture), how are the personal property components treated after the TCJA? → Personal property components are excluded from 1031 exchange treatment and may be taxable
27. What is a key element of transaction processing? → Transaction Processing best practice
28. In a 1031 exchange in which no boot is received and the taxpayer fully reinvests all proceeds into qualifying replacement property, the result is: → Full deferral of all realized gain with no gain recognized in the current year
29. If a taxpayer continuously completes 1031 exchanges throughout their lifetime and holds the final property until death, what happens to the deferred gain? → The gain is permanently eliminated through the step-up in basis at death
30. A taxpayer can eliminate mortgage boot arising from reduced debt on replacement property by: → Adding cash to the exchange or acquiring replacement property with equal or greater debt