fed income tax question

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portaprokoss
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Joined: Wed Nov 23, 2011 2:40 pm

fed income tax question

Postby portaprokoss » Wed Dec 12, 2012 11:43 am

Ultimately, i'm trying to determine the amount realized for purposes of computing gain/ loss realized.

In a like-kind exchange where Taxpayer A receives like-kind property and boot, I have to determine whether Taxpayer A realized a gain or loss because, if there's a gain then Taxpayer A must recognize the gain up to the value of the boot received. So, for the purposes of determining "whether Taxpayer A realized a gain or loss," the amount realized equals the FMV of the like-kind property received from Taxpayer B plus the FMV boot received from Taxpayer B. What if Taxpayer A pays boot as well? Where does boot paid by Taxpayer A enter into the equation determining "whether Taxpayer A realized a gain or loss?"

Edit. I guess my question boils down to this: Does the Taxpayer who pays boot include the boot paid by him in basis of like-kind he property relinquishes?

SFConfidential
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Joined: Sat Apr 21, 2012 2:58 pm

Re: fed income tax question

Postby SFConfidential » Wed Dec 12, 2012 12:41 pm

portaprokoss wrote:Ultimately, i'm trying to determine the amount realized for purposes of computing gain/ loss realized.

In a like-kind exchange where Taxpayer A receives like-kind property and boot, I have to determine whether Taxpayer A realized a gain or loss because, if there's a gain then Taxpayer A must recognize the gain up to the value of the boot received. So, for the purposes of determining "whether Taxpayer A realized a gain or loss," the amount realized equals the FMV of the like-kind property received from Taxpayer B plus the FMV boot received from Taxpayer B. What if Taxpayer A pays boot as well? Where does boot paid by Taxpayer A enter into the equation determining "whether Taxpayer A realized a gain or loss?"

Edit. I guess my question boils down to this: Does the Taxpayer who pays boot include the boot paid by him in basis of like-kind he property relinquishes?


According to Fed Tax E&E, yes. "The party paying boot adds the boot to the basis of the like-kind property given up int eh exchange, for purposes of computing (i) the gain realized in the exchange, and (ii) the basis of the like-kind property received in the exchange." (pg 131, last sentence at bottom of page).

Good luck, I f*cking hate tax.

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JollyGreenGiant
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Joined: Tue Apr 17, 2007 9:12 pm

Re: fed income tax question

Postby JollyGreenGiant » Wed Dec 12, 2012 2:22 pm

Presumably the amount given as boot would be added to your basis whereas the amount received would be taxable.

I have no idea if this is correct. I hate complicated like-kind exchanges.

Watermelon Man
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Joined: Tue Sep 04, 2012 9:55 pm

Re: fed income tax question

Postby Watermelon Man » Wed Dec 12, 2012 7:13 pm

Are you saying that both A and B are giving up boot? Obviously if the boot was cash it would net out and you only have to worry about one boot. If each TP is throwing in something that's not like kind then I don't know why the TP wouldn't treat it as 2 separate transactions.
Last edited by Watermelon Man on Wed Dec 12, 2012 7:24 pm, edited 1 time in total.

Watermelon Man
Posts: 30
Joined: Tue Sep 04, 2012 9:55 pm

Re: fed income tax question

Postby Watermelon Man » Wed Dec 12, 2012 7:20 pm

if only one TP is paying boot, then the TP paying the boot treats it as 2 separate transactions. One is like kind (the TP's like kind property for an equivalent FMV portion of the other party's like kind property). 0 gain recognized (no boot). The 2nd transaction is the TP's boot for the remaining portion. This is just an ordinary transaction (i.e., not like kind and 1031 rules don't apply) so the TP will realize or recognize whatever gain or loss you calculate. Then to calculate basis you add the TP's basis in all of the property exchanged (boot + like kind property) and subtract the loss recognized or add the gain recognized from the 2nd transaction.




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