CES Boot and Gain Recognition 3

Question 1

A taxpayer's realized gain is zero (no economic gain), yet the taxpayer receives $30,000 in cash boot. How much gain is recognized?

Accepted Answer

$0, because recognized gain cannot exceed realized gain

Answer

$30,000, equal to the boot received

Answer

$15,000, representing 50% of the boot received

Answer

$30,000 less the taxpayer's adjusted basis

Question 2

Which of the following best describes the 'net boot' concept used in gain recognition calculations?

Accepted Answer

Boot received minus allowable exchange expenses and any boot paid by the taxpayer

Answer

Total FMV of all property received minus total FMV of all property relinquished

Answer

Mortgage assumed on replacement property minus mortgage relieved on relinquished property

Answer

Cash received plus personal property received, without reduction for any costs

Question 3

A taxpayer sells a property with an adjusted basis of $100,000 for $400,000 (no debt) and acquires replacement property worth $350,000. Ignoring selling costs, what is the recognized gain?

Accepted Answer

$50,000

Answer

$300,000

Answer

$250,000

Answer

$0

Question 4

How does the recognition of gain on boot received affect the basis of the replacement property?

Accepted Answer

The basis is adjusted upward by the amount of gain recognized on the boot, reducing deferred gain

Answer

The basis increases by the full amount of boot received regardless of gain recognition

Answer

The basis is entirely unaffected by the receipt of boot

Answer

The basis equals the FMV of replacement property only when boot is received

Question 5

A taxpayer sells unencumbered property for $600,000 (adjusted basis $200,000) and acquires replacement property worth $600,000 by assuming a $200,000 mortgage and using $400,000 in exchange funds. What is the recognized gain?

Accepted Answer

$0, because full value was reinvested with no cash back

Answer

$200,000, equal to the mortgage assumed

Answer

$400,000, equal to the cash portion of the transaction

Answer

$600,000, equal to the total sale price

Question 6

For purposes of gain recognition on a 1031 exchange reported on IRS Form 8824, which line captures the recognized gain that flows to Schedule D or Form 4797?

Accepted Answer

Line 20 — Gain recognized (lesser of line 15 or line 19)

Answer

Line 12 — Realized gain on exchange

Answer

Line 25 — Adjusted basis of replacement property

Answer

Line 7 — Fair market value of like-kind property received

Question 7

In a 1031 exchange in which no boot is received and the taxpayer fully reinvests all proceeds into qualifying replacement property, the result is:

Accepted Answer

Full deferral of all realized gain with no gain recognized in the current year

Answer

Immediate recognition of the full realized gain in the current tax year

Answer

Recognition of only the depreciation recapture portion of the realized gain

Answer

Recognition of 50% of the realized gain as long-term capital gain