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 replacement property's basis equals its FMV minus the still-deferred gain, which effectively carries the built-in gain forward into the new property.

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

Realized gain equals the amount realized (gross proceeds minus selling costs) less the adjusted basis of the property given up, following standard gain computation rules.

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

A valid 1031 exchange defers both the capital gain and the §1250 depreciation recapture; the unrecognized gain and recapture carry into the replacement property's lower basis.

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

Mortgage boot is neutralized when the taxpayer either contributes additional cash to the exchange or assumes debt on replacement property equal to or exceeding the debt relieved.

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 contributed by the taxpayer to complete the exchange directly offsets mortgage boot, reducing net boot and the amount of gain recognized.

CES - Certified Exchange Specialist Practice Test

CES - Certified Exchange Specialist Practice Test

CES Boot and Gain Recognition 2