Concepts & Mechanics of Exchanges

Upon successful completion of this course, participants will be able to:

Chapter 1

• Identify factors that determine the popularity of exchanging and specify tax law changes influencing exchange popularity and the impact of current capital gains rates.
• Recognize the differences between exchanges and installment sales and the cost benefits of each, 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.
• Specify multiple tax benefits of exchanges and the advantages they create over installment sales.

Chapter 2

• Recognize the requirements of §1031 contained in the Code and identify §1031 as an exception to the general rule of taxation under §1001;
• Specify instances where the IRS may assert an unintended mandatory application of §1031.

Chapter 3

• Differentiate like-kind exchanges from sales and specify the impact of a party’s intent.
• Identify excluded property types from qualified types by determining the meaning of “held for productive use in a trade or business” and specifying the impact of holding time.
• Recognize the focused application of section 1031 as it applies to exchange parties and mixed-use property.
• Specify the statutory exclusions from §1031 and the types of property specifically excepted.
• Recognize the allowance of only real property ask qualified property in §1031 exchanges and as a consequence the importance of the definition of real property.

Chapter 4

• Identify “boot” and like-kind property specifying boot’s potential impact on nonrecognition and list examples of boot.
• Determine taxable “boot,” specify the differences between realized gain and recognized gain recalling the limitation on recognition of gain under §1031.

Chapter 5

• Determine mortgage boot and property boot identifying whether a taxpayer has given or received boot in an exchange and the related tax consequences.
• Identify the offset rules used to determine net boot and recognize the treatment of closing costs according to R.R. 72-456.

Chapter 6

• Identify the categories of property received in an exchange and which category is permitted to recognize loss.

Chapter 7

• Identify the general carryover basis rule to calculate a taxpayer’s basis in acquired property, and determine the lingering effect of the anti-churning basis rule.

Chapter 8

• Identify property depreciation recovery periods for property used in a trade or business or held for production of income and determine carryover basis in an exchange for acquired property.
• Recognize the distinction between land and depreciable improvements, and identify the recapture provisions and their impact on gain that would otherwise be recognized.

Chapter 9

• Specify the holding period of acquired property and identify the character of gain or loss recognized in an exchange.
• Recognize the danger of exchanges between related parties and determine how §§267, 707, 453, and 1239 work together with §1031.
• Specify ways to cash out one or more partners as part of an exchange by a partnership and choose the proper tax forms to report an exchange.

Chapter 10

• Recognize a simple test for clients to analyze if an exchange is completely tax-deferred and identify the basic computation figures necessary when balancing an exchange.
• Determine how to balance multiple party exchanges using the “in and out test”, eveners, and the trade-up rule.

Chapter 11

• Identify the mechanics of a two-party and three-party “Alderson” exchange including related variations involving the cash out of a party.
• Determine the transactional flow of a traditional three-party exchange including variations to the format and recall procedural guidelines to ensure mechanics comply with §1031 provisions.
• Determine the elements of a three-party “Baird Publishing” exchange, specify variations, and identify categories of four-party exchanges.

Chapter 12

• Recall the evolution of delayed exchanges from the Starker case to their present use and the popularity of delayed exchanges, and specify current requirements and restrictions.
• Recognize the requirements of the final regulations for delayed exchanges by identifying qualifying transactions, permitted intermediaries, tax treatment of interest, and use of escrow and trust accounts.

Chapter 13

• Identify the purpose and format of longtime exchange techniques called “warehousing” and “pot method.”

Chapter 14

• Identify the differences among an accommodator, strawman, and an intermediary, determine how using such parties can facilitate exchanging, and recognize a sale and lease-back transaction and associated exchange complications.