Category Archives: Federal Income Tax

IRC §453 provides that an “installment sale” is a disposition of property where at least one payment is to be received in the taxable year following the year of disposition. Income from an installment sale is taken into account under the “installment method,” whereby income recognized in any taxable year following a disposition equals a proportion of the payments received, that proportion being equal to the gross profit over the total contract price. Continue reading →

Cash (“boot”) received in a like-kind exchange results in taxable gain to the extent of realized gain. If the taxpayer exchanges Greenacre, whose adjusted basis is $1 million, for $1 million in cash and Whiteacre, worth $1 million, the taxpayer … Continue reading →

Form 8824, used to report like kind exchanges, requires (i) a description of the relinquished and replacement properties; (ii) identification of related parties to the exchange; and (iii) calculation of realized gain, recognized gain, and the basis of replacement property … Continue reading →

Owners of real estate requiring active management may seek to acquire property requiring no active management in a like-kind exchange. However, triple net leased properties – ideal vehicles — generally cost more than $1 million. Rev. Proc. 2002-22 allows a group of small investors to acquire tenancy in common interests (TICs) in a single large replacement property and still qualify under §1031. However, management activities must be kept to a minimum, or owners of TIC interests will be deemed to comprise a de facto partnership. This would render the exchange a taxable sale since §1031 cannot accommodate the exchange of partnership interests. Continue reading →

Refinancing before or after a like-kind exchange may enable the taxpayer to extract tax-free cash in addition to reporting no gain on the exchange. Depending on the size of the mortgage encumbering the property to be replaced, refinancing may actually be necessary to avoid boot gain caused by debt relief. However, since refinancing during a like-kind exchange transforms what would otherwise be taxable boot or taxable debt relief into tax-free loan proceeds, the IRS may argue that the transaction is taxable unless an independent business purpose justifies the refinancing. Continue reading →

Commercial and residential real estate, both of which constitute “Section 1250 property,” are depreciable over 39 and 27.5 years, respectively. However, many building improvements, known as “Section 1245 property,” may be reclassified for depreciation purposes as personal property or land … Continue reading →

Although real estate drives most like-kind exchanges, personal and even intangible property may also qualify for like-kind exchange treatment. However, the expansive definition of “like kind” property applicable to real estate does not carry over to exchanges involving personal or … Continue reading →