ExpertMedium1 markMultiple Choice
CPA · Question 68 · Area 4: Entity Tax Planning
A taxpayer owns a rental property with a basis of $100,000 and FMV of $500,000. They want to exchange it for another rental property worth $500,000 to defer gain. They identify the replacement property 50 days after the sale of the relinquished property. Does this qualify as a Section 1031 exchange?
A taxpayer owns a rental property with a basis of $100,000 and FMV of $500,000. They want to exchange it for another rental property worth $500,000 to defer gain. They identify the replacement property 50 days after the sale of the relinquished property. Does this qualify as a Section 1031 exchange?
Answer options:
A.
Yes, because it was within 180 days.
B.
No, because the identification period expired.
C.
Yes, if they close within 60 days.
D.
No, because real estate is not eligible.
How to approach this question
1. Identify 1031 Deadlines:<br/> - Identification: 45 days.<br/> - Receipt: 180 days.<br/>2. Fact: Identified on day 50.<br/>3. Result: Fails 45-day rule. Exchange is taxable.
Full Answer
B.No, because the identification period expired.✓ Correct
B
The taxpayer failed the 45-day identification requirement. Therefore, the transaction does not qualify for Section 1031 deferral, and the gain is recognized.
Common mistakes
Confusing the 45-day ID period with the 180-day closing period.
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