Question

Question Which of the following statements is false? A. In a like-kind exchange under IRC§1031, the assumption or payoff of liabilities by one party to the exchange results in boot received by the other party.

B. If boot is received in a §1031 like-kind exchange and gain is recognized, the following formula correctly calculates the basis of the like-kind property received: the fair market value of like-kind property received, less any gain NOT recognized (less deferred or postponed gain).

C. The receipt of cash, the relief from debt, or receipt on non-like-kind property by a party to a IRC§1031 exchange is colloquially referred to by tax practitioners as "boot." The amount of boot received sets the ceiling on the amount of gain that is recognized for tax purposes.

D. The taxpayer who assumes a liability in a §1031 like-kind exchange receives boot in the amount of the liability and may recognize gain up to that amount.

E. Only A & C are true.

Answer 1

Option E is false.

Rest of the options are true. When you gain at the time of selling business or investments, you generally have to pay tax but as per Section 1031, there is an exception that allows you to postpone tax to be paid on gain if you reinvest the proceeds in similar property qualifying as like-kind exchange.

Formula in option B is correct.

Boot is the receipt of cash, relief from debt or receipt in non-like-kind property so option C is also correct.

Gain can be recognized upto the liability assumed in a like-kind exchange. So, option D is also true.