Tax Implications & Benefits 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 Tax Implications & Benefits flashcards as text
Which IRS form is used by a taxpayer to report a like-kind exchange?
Answer: Form 8824
Form 8824 (Like-Kind Exchanges) is filed with the taxpayer's return to report a 1031 exchange.
How does receiving cash boot affect the tax outcome of a 1031 exchange?
Answer: It is taxable to the extent of the taxpayer's realized gain
Boot received is recognized (taxable) gain to the extent of the taxpayer's realized gain but does not disqualify the entire exchange.
What is 'realized gain' in the context of a 1031 exchange?
Answer: The difference between the amount realized on the sale and the adjusted basis of the relinquished property
Realized gain is computed as the amount realized minus the adjusted basis of the relinquished property.
A taxpayer has an adjusted basis of $200,000 in the relinquished property and sells it for $500,000. What is the realized gain?
Answer: $300,000
Realized gain = $500,000 (amount realized) − $200,000 (adjusted basis) = $300,000.
If a taxpayer exchanges into a replacement property of lesser value and receives $50,000 in cash, which portion is taxable?
Answer: The lesser of the boot received ($50,000) or the realized gain
The recognized gain is the lesser of the boot received or the total realized gain on the transaction.
What impact does a 1031 exchange have on the taxpayer's future depreciation deductions?
Answer: Depreciation continues based on the carryover adjusted basis, which is lower than fair market value
Because the basis carries over (substituted basis), the depreciation deductions on the replacement property are based on a lower adjusted basis than the current fair market value.