1) A taxpayer exchanges an office building held as an investment asset for an of

Question

1) A taxpayer exchanges an office building held as an investment asset for an office building to be used in her business. The exchange will qualify as like-kind. True of False

2) Real property exchanged for personal property, both held for productive use in a business, qualifies as a like-kind exchange. TRUE OR FALSE

4) An investor exchanges an office building located in Niagara Falls, NY for an office building located in Niagara Falls, Ontario (Canada). The exchange does not qualify as like-kind. TRUE OR FALSE.

5) A loss on the sale of a taxpayer's personal residence is deductible if the taxpayer owned and lived in the home for two of five years. TRUE OR FALSE

6) In order for the gain on the sale of a personal residence to be excluded under Section 121, a replacement residence must be purchased within two years. TRUE OR FALSE

7) The taxpayer must be occupying the residence at the time of the sale in order for Sec. 121 to apply. TRUE OR FALSE

8) If a taxpayer owns more than one home, she can designate the home that will be considered her principal residence for purposes of the Sec. 121 exclusion.TRUE OR FALSE

Explanation / Answer

1. TRUE. Exchange of an office building held as an investment for an office building to be used in the business is considered to be exchange as a like kind property. As per IRS section 1031, the properties exchanged with one another  must be held for use in a trade or business or for investment. In the given case, both the properties are held for one of two reasons and therefore it is a like kind exchange.

2. False. Real & personal property  can both qualify as exchange properties under Section 1031. However, real property can never be like-kind to personal property as the rules pertaining to like kind in personal property is ore restrictive to what is given in real property. And therefore, although both can qualify for like kind but cannot be used for excahnge of one another.

4. True. The exchange of property against the like kind property in foreign country does not qualify as like kind transaction as the tax rates of both the countries are different and have different provisions regarding federal taxes.

5. False. The money received by the person on sale of personal residence is not deductible from personal income tax rather such money received as a result of loss on sale is not taxable. But you can't deduct loss from other incomes earned during the year.

6. False. Under section 121, gain from sale of personal residence is excluded from taxable income if the person has lived in that house for atleast 2 years out of the total 5 years till the date of sale of such residence.

7. False. In order to apply section 121, it is not important that the taxpayer must be occupying such home at the time of sale. Rather total 2 years shall be his stay out of 5 years at the time of sale of residence.

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