Like-Kind Exchanges (13.5 hrs)

Course Description

Like-Kind Exchanges – 13.5 hrs. CPE

While tax reform visions have changed the tax on profits realized from the disposition of real estate, investors still seek escape hatches from the capital gain tax. Tax-deferred exchanges permit the disposition of property often with the taxpayer receiving significant cash but without the payment of any tax. Functionally, an exchange is a bridge over the normally taxable event of moving from one property to another. This course alerts the practitioner to the different planning opportunities that surround exchanging. Participants will be able to identify, analyze, and handle effectively the complex tax problems that arise under 1031. This understanding will be directly applied to the structuring and audit survival of multi-party and delayed exchanges.

Course Information

Price: $11
Course No. 9005
Format: Online pdf (319 pages). Printed book available.
Prerequisites: General understanding of federal income taxation
Advance Preparation:None
Level: Overview
CPE Credit: 13.5 hrs.
Field of Study: Taxes
Course expiration:  You have one year from date of purchase to complete the course.
Course Revision Date: February 2017

Objectives

Learning Assignments & Objectives

Chapter 1 Introduction - §1031

At the start of Chapter 1, participants should identify the following major topics for study:
* ERTA & TEFRA
* Tax Reform Act of 1986
* Reform Act of 1997, Budget Act of 1998 & 2003 Bush Tax Act
* Tax Reform of 1986 & Revenue Act of 1987
* Disposition of Installment Note
* Stepped-Up Basis on Death
* Related Parties
* Security Issues
* Exchange Benefits

Learning Objectives
After reading Chapter 1, participants will be able to:
1. Identify factors that determine the popularity of exchanging, specify tax law changes influencing exchange popularity noting the impact of current capital gains rates, recognize the capital gain rate “baskets” and determine the tax treatment of assets in each category.
2. Recognize the differences between exchanges and installment sales noting cost benefits, identify several advantages given to exchanging by recent legislation and specify continuing problems that can arise with an installment sale that can act as an impetus for using an exchange.
3. Specify multiple tax benefits of exchanges noting the advantages they create over installment sales and determine issues that can be re-solved or facilitated by using a like-kind exchange.
After studying the materials in Chapter 1, answer the exam questions 1 to 8.

Chapter 2 Section 1031 & Its Function

At the start of Chapter 2, participants should identify the following major topics for study:
* Code language
* Section 1031 as an exception to the general rule of taxation
* Concept of tax deferral
* Rationale
* Continuity of investment
* Administrative convenience
* IRS position
* Mandatory application

Learning Objectives
After reading Chapter 2, participants will be able to:
1. Determine the conceptual changes made to §1031 by the TRA ’84, TRA ’86, the Revenue Act of 1987, and the RRA ’90 and specify the current provisions of §1031 by:
a. Identifying the differences in §1031 from the general rule of taxa-tion under §1001;
b. Recalling its legislative evolution; and
c. Recognizing the original Congressional rationale of §1031 con-tained in the concepts of continuity of investment and administrative convenience.
2. Specify instances where the IRS may assert an unintended mandato-ry application of §1031.
After studying the materials in Chapter 2, answer the exam questions 9 to 13.

Chapter 3 Statutory Requirements & Definitions

At the start of Chapter 3, participants should identify the following major topics for study:
* Qualified transaction – exchange v. sales
* Held for productive use or investment
* Change in property’s character
* State of mind concept
* Same taxpayer requirement
* Statutory exclusions from §1031
* Like kind property
* Like-kind requirement for personal property
* Multiple asset exchanges
* Real v. personal property

Learning Objectives
After reading Chapter 3, participants will be able to:
1. Specify the elements §1031 noting how these elements conceptually differentiate a like-kind exchange from a sale.
2. Identify excluded property types from qualified property types by de-termining the meaning the phrases “held for productive use in a trade or business,” “productive use,” and “investment purpose” noting the impact of time and taxpayer intent.
3. Recognize the state of mind issues in the concept “held for produc-tive use in trade or business or for investment” noting how qualifying use can ease qualification, determine the differences between §1031 and old §1034, and cite the same taxpayer requirement noting the un-settled caselaw.
4. Specify the statutory exclusions from §1031 noting the types of prop-erty that are specifically excepted.
5. Identify the like-kind requirement as it impacts real estate and per-sonal property exchanges, and recognize classification systems permit-ting clients to exchange like-kind or like-class personal property.
After studying the materials in Chapter 3, answer the exam questions 14 to 27.

Chapter 4 The Concept of Boot

At the start of Chapter 4, participants should identify the following major topics for study:
* Partial tax-deferral
* Examples of boot
* Realized gain
* Recognized gain
* Limitation on recognition of gain under §1031
* The definition of “boot”

Learning Objectives
After reading Chapter 4, participants will be able to:
1. Identify “boot” and like-kind property noting boot’s potential impact on nonrecognition and list several examples of boot.
2. Determine taxable “boot,” specify the differences between realized gain and recognized gain recalling the limitation on recognition of gain under §1031 that prevents a taxpayer from being taxed greater than if he had sold the property, and recognize taxable “boot’s” net effect.
After studying the materials in Chapter 4, answer the exam questions 28 to 31.

Chapter 5 The Rules of Boot

At the start of Chapter 5, participants should identify the following topics for study:
* Property boot
* Mortgage boot
* Debt relief
* Liability or notes created during the exchange
* Netting boot – the rules of offset
* Property boot given offsets any boot received
* Mortgage boot given offsets mortgage boot received
* Mortgage boot given does not offset property boot received
* R.R. 72-456 & commissions
* Net taxability of gain

Learning Objectives
After reading Chapter 5, participants will be able to:
1. Determine mortgage boot and property boot identifying whether a taxpayer has given or received boot in an exchange noting the related tax consequences.
2. Identify the popular and alternate offset rules used to determine net boot, specify techniques to limit net taxable boot such as adjusting mortgages before an exchange and treating closing costs according to R.R. 72-456, and recognize the taxability of gain rule to reflect netting.
After studying the materials in Chapter 5, answer the exam questions 32 to 36.

Chapter 6 Losses

At the start of Chapter 6, participants should identify the following topics for study:
* Losses on like-kind property
* Losses on non like-kind property

Learning Objectives
After reading Chapter 6, participants will be able to:
1. Identify the categories of property received in an exchange into not-ing which category is permitted to recognize loss, recognize how avoid-ing §1031 can allow clients to potentially increase recognizable losses, and determine the tax treatment of non-recognized losses under §1031.
After studying the materials in Chapter 6, answer the exam questions 37 to 38

Chapter 7 Basis on Tax-Deferred Exchange

At the start of Chapter 7, participants should identify the following topics for study:
* Adjustments to basis
* Allocation of basis
* Anti-churning rules

Learning Objectives
After reading Chapter 7, participants will be able to:
1. Identify the general carryover basis rule to calculate a taxpayer’s ba-sis in acquired property by determining its application and specifying the related allocation of basis to multiple properties and boot in an ex-change.
After studying the materials in Chapter 7, answer the exam questions 39 to 41.

Chapter 8 Depreciation, Cost Recovery, MACRS & Recapture

At the start of Chapter 8, participants should identify the following topics for study:
* ERTA
* TRA ’86 & OBRA ‘93
* IRS depreciation guidance
* Land v. improvements
* Section 1245 & Section 1250
* Recapture property
* Recapture exceptions prior to ERTA
* Issues after ERTA
* Allocation of basis when recapture applies
* Investment credit recapture

Learning Objectives
After reading Chapter 8, participants will be able to:
1. Identify property depreciation under §167 particularly as it applies to property used in a taxpayer’s trade or business or held for the produc-tion of income noting the impact of ERTA, TRA ’86 and OBRA ’93, determine the changes made by Notice 2000-4, and cite the deprecia-tion requirements of later regulations affecting recovery periods and depreciation methods.
2. Recognize the distinction between land and depreciable improve-ments, identify the recapture provisions noting their impact on the rate to be applied to all or a portion of the gain that would otherwise be recognized.
After studying the materials in Chapter 8, answer the exam questions 42 to 46.

Chapter 9 Miscellaneous Aspects

At the start of Chapter 9, participants should identify the following topics for study:
* Holding period
* Treatment of gain or loss
* Treatment of installment sales prior to 1980
* Treatment of installment sales after to 1980
* Exchanges between related parties
* Two-year limitation
* Sections 267, 707, 453 and 1239
* Leverage
* Splitting partners
* Reporting an exchange

Learning Objectives
After reading Chapter 9, participants will be able to:
1. Specify the holding period of acquired property, identify the charac-ter of gain or loss recognized in an exchange, and recall the evolution of the installment sale method noting current rules related to exchang-es and determine the formula for gain recognized using gross profit, selling price and total contract price under §453.
2. Recognize the danger of exchanges between related parties by:
a. Specifying the two-year limitation on such exchanges by;
i. Determining related parties;
ii. Identifying the special holding period rule;
iii. Selecting at least three types of dispositions that will not invali-date the nonrecognition treatment on an original exchange; and
iv. Citing the avoidance exception to §1031; and
b. Identifying how §§267, 707, 453 and 1239 work together with §1031.
3. Recognize how leveraging can be useful in a §1031 exchange, specify ways to cash out one or more partners out as part of an exchange by a partnership, and choose the proper tax forms to report an exchange.
After studying the materials in Chapter 9, answer the exam questions 47 to 52.

Chapter 10 Mechanics

At the start of Chapter 10, participants should identify the following topics for study:
* Meeting the napkin test
* Components
* Figures for computation
* Economic balance & “evening out”
* Examples of balancing multiple party exchanges
* Locating boot
* Finding exchange property
* Refinancing
* “Coleman” solution
* Wrap-around mortgage

Learning Objectives
After reading Chapter 10, participants will be able to:
1. Recognize a simple test that permits clients and their advisors to de-termine if an exchange is completely tax-deferred noting the compo-nents of the this test, identify the basic computation figures necessary to economically balance an exchange, and specify methods of evening out to insure that all parties get the same value as they give.
2. Determine how to balance multiple party exchanges using the in and out test determining net boot, select optimal exchange property to minimize taxable gain, and identify how to use refinancing, the “Cole-man” solution, a wrap-around mortgage or a tax-free “cash out” to balance out an exchange.
After studying the materials in Chapter 10, answer the exam questions 53 to 58.

Chapter 11 Types of Exchanges

At the start of Chapter 11, participants should identify the following top-ics for study:
* Two-party exchanges and variation
* Three-property-plus exchanges and variation
* Three-party “Alderson” exchange and variations
* Three-party “Baird Publishing” exchange and variations
* Four-party “Coupe” exchange
* Four-party “Mercantile Trust” exchange

Learning Objectives
After reading Chapter 11, participants will be able to:
1. Identify the mechanics of a two-party and three-party exchange in-cluding related variations involving the cash out of a party.
2. Determine the transactional flow of a traditional three-party “Alder-son” exchange including variations to the format, recognize the respec-tive parties tax consequences and recall procedural guidelines to en-sure mechanics comply with §1031 provisions.
3. Determine the elements of a three-party “Baird Publishing” ex-change and an “Alderson” exchange, specify variations of the “Baird Publishing” exchange noting situations when each is the preferable format to use, identify categories of four-party exchanges, and specify when conditions favor the use a four-party “Coupe” exchange or a four-party “Mercantile Trust” exchange.
After studying the materials in Chapter 11, answer the exam questions 59 to 67.

Chapter 12 Delayed Exchanges

At the start of Chapter 12, participants should identify the following top-ics for study:
* Delayed exchange v. delayed close
* Previously used formats
* Starker case
* TRA ‘84
* Format & structure
* Security for performance – use & control of cash
* Delayed (deferred) exchange regulations
* Identification requirements
* Actual & constructive receipt rule
* Delayed exchange agreement

Learning Objectives
After reading Chapter 12, participants will be able to:
1. Identify the distinctions between delayed exchanges and delayed closes particularly as to simultaneity, recall the evolution of delayed ex-change requirements from the Starker case through the restrictive TRA ’84 time limits to the present noting the popularity of delayed ex-changes and specify unresolved issues for delayed exchanges.
2. Recognize the requirements of the final regulations for delayed ex-changes by:
a. Identifying the effective date for the regulations;
b. Specify the differences between delayed exchanges and “reverse-starker” transactions;
c. Determining the delayed exchange identification requirements by:
i. Specifying the identification and exchange periods;
ii. Identifying replacement property;
iii. Specifying requirements to revoke the identification of proper-ty;
iv. Recognizing the substantial receipt requirement; and
v. Selecting multiple replacement properties according to the re-quirements of Reg. §1.1031(a)-1(c)(4)(i)(A); and
d. Identifying whether a taxpayer is in actual or constructive receipt of money by recalling the safe harbors that can be used without risk of actual and constructive receipt.
After studying the materials in Chapter 12, answer the exam questions 68 to 75.

Chapter 13 Warehousing & Pot Method

At the start of Chapter 13, participants should identify the following top-ics for study:
* Warehousing
* Reverse exchanges – R.P. 2000-37
* R.P. 2004-51
* The pot method
* Escrow

Learning Objectives
After reading Chapter 13, participants will be able to:
1. Identify the purpose a longtime exchange technique called “ware-housing,” specify the procedural aspects of reverse exchanges under R.P. 2000-37 noting variables impacting its application, recognize the “pot” method recalling the procedural role of “strawmen,” and deter-mine the role of exchange escrows.
After studying the materials in Chapter 13, answer the exam questions 76 to 78.

Chapter 14 Accommodators & Intermediaries

At the start of Chapter 14, participants should identify the following top-ics for study:
* Roles of accommodators
* Sale & lease-back

Learning Objectives
After reading Chapter 14, participants will be able to:
1. Identify the differences between an accommodator and an interme-diary, determine how using such parties can facilitate exchanging by avoiding certain holding problems, multiple parties and properties, and transfer difficulties, and recognize a sale and lease-back transaction noting associated exchange complications.
After studying the materials in Chapter 14, answer the exam questions 79 to 80.

Purchase
Posted in: