CES Boot and Gain Recognition 2

Question 1

The adjusted basis of replacement property in a completed 1031 exchange is generally calculated as:

Accepted Answer

The FMV of replacement property minus the deferred (unrecognized) gain

Answer

The fair market value of the replacement property at acquisition

Answer

The original cost of the relinquished property plus improvements

Answer

The net sale price of the relinquished property minus exchange costs

Question 2

A taxpayer's realized gain on the relinquished property is correctly calculated as:

Accepted Answer

Amount realized (sale price less selling costs) minus the adjusted basis of relinquished property

Answer

Replacement property FMV minus relinquished property FMV

Answer

Boot received minus qualifying exchange expenses

Answer

Net equity in replacement property minus net equity in relinquished property

Question 3

In a fully qualifying 1031 exchange, depreciation recapture under IRC §1250 is:

Accepted Answer

Deferred along with the capital gain into the replacement property's basis

Answer

Immediately recognized as ordinary income at the time of the exchange

Answer

Permanently eliminated by the exchange transaction

Answer

Only deferred on residential rental property, not commercial property

Question 4

A taxpayer can eliminate mortgage boot arising from reduced debt on replacement property by:

Accepted Answer

Adding cash to the exchange or acquiring replacement property with equal or greater debt

Answer

Paying down the relinquished property's mortgage before listing the property

Answer

Requesting a waiver from the IRS by filing Form 8824 with an explanation

Answer

Splitting the transaction into two separate like-kind exchanges

Question 5

Under the boot netting rules, which of the following can directly offset mortgage boot?

Accepted Answer

Cash added by the taxpayer into the exchange

Answer

Cash received by the taxpayer from the qualified intermediary

Answer

The qualified intermediary's escrow fee

Answer

Depreciation allowed on replacement property after acquisition

Question 6

Which of the following would NOT constitute boot in a 1031 exchange?

Accepted Answer

An additional parcel of qualifying like-kind real estate received from the buyer

Answer

Net mortgage relief of $50,000 from reduced debt on replacement property

Answer

$10,000 in cash disbursed to the taxpayer at closing

Answer

Personal property worth $5,000 received from the buyer

Question 7

When a taxpayer pays cash boot to the other party (rather than receiving it), the tax consequence to the paying taxpayer is:

Accepted Answer

No boot is received by the paying taxpayer, so no gain is triggered by that cash

Answer

The cash paid is deductible as an exchange expense reducing taxable income

Answer

The cash paid creates a tax credit equal to the capital gains rate times the amount paid

Answer

The cash paid permanently reduces the taxpayer's realized gain on future dispositions