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Which of the following situations involving an exchange of business property exemplifies a fully nontaxable exchange?

Which of the following situations involving an exchange of business property exemplifies a fully nontaxable exchange?

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Answer #1

If the exchange involves only the like-kind property, and no money or other unlike property is involved, the exchange is nontaxable and the basis of the property received is generally the same as the basis of the property given. Any gain or loss on the exchange would not be recognized until you sell or dispose of the property you receive.

If you pay money or give up other, different property in a like-kind exchange, no gain or loss is recognized on the exchange, but your basis in the new property is your basis in the like-kind property you give up plus the money you pay and the value of the other property you give.

In order for an exchange to be nontaxable, the properties given and received in the exchange have to meet two tests: they have to be qualifying property, and they have to be like-kind property.

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