The Art of Like Kind Exchanges (eBook)

  • Credits: 14
  • Format: Self-Study eBook
  • Field of Study: Federal Tax Law
  • Author/Speaker: Danny Santucci
Available Formats:
Advanced Preparation: None
Experience Level: Overview
Program Prerequisites: General Understanding of Federal Income Tax
Course ID: EWTFM-T-01853-21-S | 6233-CE-0566
Published Date: © September 2021

COURSE DESCRIPTION

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.

Topics include:
  • Chapter 1 Introduction - §1031
  • Chapter 2 Section 1031 & Its Function
  • Chapter 3 Statutory Requirements & Definitions
  • Chapter 4 The Concept of “Boot”
  • Chapter 5 The Rules of “Boot”
  • Chapter 6 Losses
  • Chapter 7 Basis on Tax-Deferred Exchange
  • Chapter 8 Depreciation, Cost Recovery, MACRS & Recapture
  • Chapter 9 Miscellaneous Aspects
  • Chapter 10 Mechanics
  • Chapter 11 Types of Exchanges
  • Chapter 12 Delayed Exchanges
  • Chapter 13 Warehousing & Pot Method
  • Chapter 14 Accommodators & Intermediaries

Learning Objectives:

After reading the course material, you will be able to:

  • Identify factors that determine the popularity of exchanging, specify tax law changes influencing exchange popularity and the impact of current capital gains rates, recognize the capital gain rate "baskets" and determine the tax treatment of assets in each category.
  • Specify multiple tax benefits of exchanges and the advantages they create over installment sales and determine issues that can be resolved or facilitated by using a like-kind exchange.
  • 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:
    • Identifying the differences in §1031 from the general rule of taxation under §1001;
    • Recalling its legislative evolution; and
    • Recognizing the original Congressional rationale of §1031 contained in the concepts of continuity of investment and administrative convenience.
  • Specify instances where the IRS may assert an unintended mandatory application of §1031.
  • Specify the elements §1031 and how these elements conceptually differentiate a like-kind exchange from a sale.
  • Identify excluded property types from qualified property types by determining the meaning of the phrases “held for productive use in a trade or business,” “productive use,” and “investment purpose” specifying the impact of time and taxpayer intent.
  • Recognize the state of mind issues in the concept “held for productive use in a trade or business or for investment” and how qualifying use can ease qualification, determine the differences between §1031 and old §1034, and cite the same taxpayer requirement and its unsettled case law.
  • Specify the former statutory exclusions from §1031 and the types of property that were specifically excepted.
  • Identify the like-kind requirement as it impacts real estate and personal property, and recognize the former classification systems that permitted clients to exchange like-kind or like-class personal property
  • Identify “boot” and like-kind property specifying boot's potential impact on nonrecognition and list several examples of the boot.
  • 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 popular and alternate offset rules used to determine netboot, specify techniques to limit net taxable boot such as adjusting mortgages before exchange and treating closing costs according to R.R. 72-456, and recognize the taxability of gain rule to reflect netting
  • Identify the categories of property received in an exchange and which category is permitted to recognize a loss, recognize how avoiding §1031 can allow clients to potentially increase recognizable losses, and determine the tax treatment of non-recognized losses under §1031.
  • Identify the general carryover basis rule to calculate a taxpayer’s basis in the acquired property by determining its application and specifying the related allocation of basis to multiple properties and boot in an exchange.
  • Identify property depreciation under §167 particularly as it applies to property used in a taxpayer’s trade or business or held for the production of income and the impact of ERTA, TRA ’86, OBRA ’93, and TCJA determine the changes made by Notice 2000-4, and cite the depreciation requirements of later regulations affecting recovery periods and depreciation methods
  • Specify the holding period of acquired property, identify the character of gain or loss recognized in an exchange, recall the evolution of the installment sale method and the current rules related to exchanges and determine the formula for gain recognized using gross profit, selling price, and total contract price under §453.
  • Recognize a simple test that permits clients and their advisors to determine if an exchange is completely tax-deferred and the components of this test, identify the basic computation figures necessary to economically balance an exchange, and specify methods of evening out to ensure that all parties get the same value as they give.
  • Determine how to balance multiple party exchanges using the in and out test determining netboot, select optimal exchange property to minimize taxable gain, and identify how to use refinancing, the “Coleman” solution, a wrap-around mortgage, or a tax-free “cash-out” to balance out an exchange.
  • Identify the mechanics of a two-party and three-party exchange including related variations involving the cash out of a party.
  • Determine the transactional flow of a traditional three-party “Alderson” exchange including variations to the format, recognize the respective parties' tax consequences, and recall procedural guidelines to ensure mechanics comply with §1031 provisions.
  • Determine the elements of a three-party “Baird Publishing” exchange and an “Alderson” exchange, specify variations of the “Baird Publishing” exchange and situations when each is the preferred format to use, identify categories of four-party exchanges, and specify when conditions favor the use of a four-party “Coupe” exchange or a four-party “Mercantile Trust” exchange
  • Identify the distinctions between delayed exchanges and delayed closes particularly as to simultaneity, recall the evolution of delayed exchange requirements from the Starker case through the restrictive TRA ’84 time limits to the present and the popularity of delayed exchanges and specify unresolved issues for delayed exchanges.
  • Identify the purpose of a longtime exchange technique called “warehousing,” specify the procedural aspects of reverse exchanges under R.P. 2000-37 and variables impacting its application, recognize the “pot” method recalling the procedural role of “strawmen,” and determine the role of exchange escrows
  • Identify the differences between an accommodator and an intermediary, 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 and associated exchange complications.

Who Should Attend:
  • All Certified Public Accountants (CPAs)
  • Enrolled Agents (EAs)
  • Other Tax Return Preparer (OTRP)

Qualifies and Approved with all State Boards of Accountancy and the following sponsorship’s:
NASBA
IRS
CTEC