CES Tax Implications & Benefits 2

Question 1

Which IRS form is used by a taxpayer to report a like-kind exchange?

Accepted Answer

Form 8824

Answer

Form 8824 (Like-Kind Exchanges) is filed with the taxpayer's return to report a 1031 exchange.

Question 2

How does receiving cash boot affect the tax outcome of a 1031 exchange?

Accepted Answer

It is taxable to the extent of the taxpayer's realized gain

Answer

Boot received is recognized (taxable) gain to the extent of the taxpayer's realized gain but does not disqualify the entire exchange.

Question 3

What is 'realized gain' in the context of a 1031 exchange?

Accepted Answer

The difference between the amount realized on the sale and the adjusted basis of the relinquished property

Answer

Realized gain is computed as the amount realized minus the adjusted basis of the relinquished property.

Question 4

A taxpayer has an adjusted basis of $200,000 in the relinquished property and sells it for $500,000. What is the realized gain?

Accepted Answer

$300,000

Answer

Realized gain = $500,000 (amount realized) − $200,000 (adjusted basis) = $300,000.

Question 5

If a taxpayer exchanges into a replacement property of lesser value and receives $50,000 in cash, which portion is taxable?

Accepted Answer

The lesser of the boot received ($50,000) or the realized gain

Answer

The recognized gain is the lesser of the boot received or the total realized gain on the transaction.

CES - Certified Exchange Specialist Practice Test