Exchange Structures & Strategies Flashcards
6 cards from real CES practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Exchange Structures & Strategies flashcards as text
What is the 'drop and swap' strategy in a 1031 exchange partnership context?
Answer: Partners receive their interest as tenants-in-common before the exchange so each can independently participate or cash out
In a drop and swap, partnership interests are converted to TIC interests before the exchange, allowing some partners to cash out and others to do a 1031 exchange independently.
A taxpayer wants to use a 1031 exchange to consolidate two smaller rental properties into one larger commercial property. Is this permitted?
Answer: Yes, multiple relinquished properties can be exchanged for one or more replacement properties
A taxpayer can relinquish multiple properties and acquire one or more replacement properties in a single 1031 exchange transaction.
What is a '1031 exchange accommodation titleholder agreement' (QEAA) and when is it required?
Answer: A QEAA is the written agreement between the taxpayer and EAT required for reverse and improvement exchange safe harbors
Under Rev. Proc. 2000-37, a QEAA is the written agreement establishing the EAT arrangement in reverse and improvement exchanges.
Which of the following best describes an 'installment sale' combined with a 1031 exchange?
Answer: A 1031 exchange can defer gain on proceeds received at closing, while installment payments received later may be partially taxable
Exchange proceeds received at closing are deferred via the 1031 exchange, but subsequent installment payments received from the buyer may be subject to tax as they are received.
What is an 'exchange-first' strategy in a 1031 exchange involving a partial 1031 and partial installment sale?
Answer: The taxpayer completes the 1031 exchange before receiving any installment payments
In an exchange-first strategy, all proceeds possible are directed into the 1031 exchange, with the installment note handled separately to manage taxable portions.
A CES professional is advising a client who wishes to exchange out of active rental property into a DST. What key risk should they disclose about DST investments?
Answer: DSTs are illiquid, passive investments with no ability for the investor to manage or refinance the property
DST investments are highly illiquid and passive — investors have no management control, and refinancing or selling the property requires unanimous consent.