CES Like-Kind Property Requirements 2

Question 1

What term is used to describe property given up by the taxpayer in a 1031 exchange?

Accepted Answer

Relinquished property

Answer

The property given up by the taxpayer is called the relinquished property.

Question 2

In a 1031 exchange, what does 'boot' refer to?

Accepted Answer

Any unlike property or cash received in the exchange

Answer

Boot is any unlike property or cash received in the exchange, which is taxable to the extent of gain.

Question 3

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?

Accepted Answer

It is treated as boot and is taxable

Answer

The $50,000 in cash received is boot and is taxable to the extent of the taxpayer's realized gain.

Question 4

Which of the following would create 'mortgage boot' in a 1031 exchange?

Accepted Answer

Acquiring a replacement property with a lower mortgage than the relinquished property

Answer

If the taxpayer takes on less debt on the replacement property than existed on the relinquished property, the net debt relief is treated as mortgage boot.

Question 5

To fully defer capital gains tax in a 1031 exchange, the replacement property must have a value that is:

Accepted Answer

Equal to or greater than the relinquished property

Answer

To fully defer gain, the taxpayer must acquire replacement property of equal or greater value and reinvest all net exchange proceeds.

CES - Certified Exchange Specialist Practice Test

CES - Certified Exchange Specialist Practice Test

CES Like-Kind Property Requirements 2