CES Boot and Gain Recognition

Question 1

In a 1031 exchange, the term 'boot' refers to:

Accepted Answer

Non-like-kind property, cash, or net debt relief received in the exchange

Answer

Additional like-kind real property received beyond the relinquished property

Answer

The qualified intermediary's fee for facilitating the exchange

Answer

Excess equity carried forward into the replacement property

Question 2

A taxpayer relinquishes a property with a $500,000 mortgage and acquires replacement property encumbered by only a $400,000 mortgage. The $100,000 difference is best described as:

Accepted Answer

Mortgage boot (net debt relief) treated as boot

Answer

Cash boot received by the taxpayer

Answer

A non-taxable reduction in exchange value

Answer

An exchange expense that offsets realized gain

Question 3

The amount of gain recognized in a partially tax-deferred 1031 exchange equals:

Accepted Answer

The lesser of the boot received or the total realized gain

Answer

The total realized gain on the relinquished property

Answer

The greater of the boot received or the total realized gain

Answer

Zero, because all gain is always deferred

Question 4

Which of the following is the clearest example of 'cash boot' in a 1031 exchange?

Accepted Answer

Receiving cash proceeds that are disbursed to the taxpayer rather than reinvested

Answer

Assuming a larger mortgage on the replacement property

Answer

Receiving non-like-kind personal property at closing

Answer

Paying qualified intermediary fees from exchange proceeds

Question 5

Which of the following costs are treated as exchange expenses that reduce boot and taxable gain?

Accepted Answer

Selling commissions and transactional closing costs paid at settlement

Answer

Mortgage principal payments made before closing

Answer

Depreciation previously taken on the relinquished property

Answer

Tenant security deposits held in escrow

Question 6

A taxpayer has a realized gain of $200,000 and receives $75,000 in boot. How much gain must the taxpayer recognize?

Accepted Answer

$75,000

Answer

$200,000

Answer

$125,000

Answer

$0

Question 7

If a taxpayer receives furniture and appliances (personal property) as part of an otherwise qualifying real estate exchange, how is that personal property treated?

Accepted Answer

As boot subject to gain recognition equal to its fair market value

Answer

As qualifying like-kind property with no tax consequence

Answer

As a tax-free gift excluded from the exchange calculation

Answer

As a suspended item deferred until the replacement property is sold