CPA Regulation Reg Quiz: Apply Like Kind Exchange Rules

What this quiz covers

This quiz focuses on Apply Like Kind Exchange Rules, giving you a quick way to practice the rules, question types, and explanations that matter most for CPA Regulation Reg.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

Question 1

1. The basis of the replacement property equals its fair market value at the date of exchange because it is newly acquired property.
2. The basis of the replacement property generally equals the basis of the relinquished property, decreased by money received and increased by gain recognized (and increased by money paid, if any). (correct answer)
3. The basis of the replacement property equals the basis of the relinquished property plus the entire realized gain, regardless of boot.
4. The basis of the replacement property is zero because IRC Section 1031 defers all tax attributes until disposition.

Explanation: Like-kind exchanges under IRC Section 1031 allow taxpayers to defer recognition of gain or loss on the exchange of property held for productive use in a trade or business or for investment when it is exchanged for property of like kind. The exchange includes $25,000 cash boot. Choice B is correct because the replacement basis is the relinquished basis minus cash received plus gain recognized, per Section 1031(d). Choice A is incorrect as basis is not FMV; choice C is wrong because realized gain is not fully added; choice D is incorrect since basis is carried over, not zero. To apply like-kind exchange rules correctly, identify replacement within 45 days. Deferred gain is embedded in the adjusted basis for future recognition.

Question 2

1. The debt relief is treated as boot, potentially causing gain recognition to the extent of the net liability relief (limited by realized gain). (correct answer)
2. Debt relief is ignored for IRC Section 1031 purposes, so no boot exists and no gain can be recognized.
3. The exchange fails because any mortgage on the relinquished property disqualifies IRC Section 1031 treatment.
4. The debt relief creates a deductible loss that offsets any gain recognized in the exchange.

Explanation: Like-kind exchanges under IRC Section 1031 allow taxpayers to defer recognition of gain or loss on the exchange of property held for productive use in a trade or business or for investment when it is exchanged for property of like kind. The exchange involves mortgage assumption on the relinquished property without assuming debt on the replacement, creating net debt relief boot. Choice A is correct because net debt relief is boot, triggering gain up to that amount under Section 1031(d). Choice B is incorrect as debt relief is considered boot; choice C is wrong because mortgages do not disqualify if otherwise qualifying; choice D is incorrect since debt relief is income, not a loss. To apply like-kind exchange rules correctly, identify within 45 days and acquire within 180 days. Deferred gain adjusts the replacement basis downward.

Question 3

1. Yes, because identification must occur within 45 days of the transfer of the relinquished property, and the identification on August 20 is late. (correct answer)
2. No, because identification is timely as long as the replacement property is acquired within 180 days.
3. No, because real property exchanges are always tax-free regardless of timing.
4. Yes, because the exchange must be completed within 45 days, not 180 days.

Explanation: Like-kind exchanges under IRC Section 1031 allow taxpayers to defer recognition of gain or loss on the exchange of property held for productive use in a trade or business or for investment when it is exchanged for property of like kind. The transaction involves transferring a retail building on July 1, identifying replacement properties on August 20 (50 days later), and acquiring one on December 15. Choice A is correct because failure to identify within 45 days disqualifies deferral, leading to immediate gain recognition under Section 1031(k). Choice B is incorrect as timely identification is required separately from the 180-day acquisition period; choice C is wrong because timing rules must be met for tax deferral; choice D is incorrect since the exchange period is 180 days, but identification is still required within 45 days. To apply like-kind exchange rules correctly, provide written identification of up to three properties (or more under the 200% rule) within 45 days. Deferred gain reduces the replacement property's basis, deferring taxation until the property is sold or otherwise disposed of in a taxable transaction.

Question 4

1. Recognize gain to the extent of net boot received ($10,000 minus qualifying exchange expenses, if treated as reducing boot), limited by realized gain. (correct answer)
2. Recognize gain of $15,000 because both cash received and cash paid are treated as boot received.
3. Recognize no gain because paying cash at closing eliminates any boot received.
4. Recognize gain only if the taxpayer fails to file Form 8824.

Explanation: Like-kind exchanges under IRC Section 1031 allow taxpayers to defer recognition of gain or loss on the exchange of property held for productive use in a trade or business or for investment when it is exchanged for property of like kind. The taxpayer receives $10,000 cash boot but pays$5,000 at closing for adjustments. Choice A is correct because net boot ($5,000 after qualifying expenses) triggers gain recognition, limited by realized gain, per Section 1031(b) and regulations. Choice B is incorrect as cash paid reduces boot, not increases it; choice C is wrong because net boot still exists; choice D is incorrect since gain depends on boot, not filing. To apply like-kind exchange rules correctly, identify within 45 days and acquire within 180 days. Deferred gain reduces the replacement basis.

Question 5

1. File Form 8824 to report the like-kind exchange and compute realized and recognized gain and the basis of replacement property. (correct answer)
2. File Form 6252, Installment Sale Income, because all deferred exchanges are installment sales.
3. File Form 8949 only, because all property exchanges are reported as sales of capital assets.
4. No specific form is required if no boot is received and the exchange is fully deferred.

Explanation: Like-kind exchanges under IRC Section 1031 allow taxpayers to defer recognition of gain or loss on the exchange of property held for productive use in a trade or business or for investment when it is exchanged for property of like kind. The exchange uses a qualified intermediary and meets the 45-day and 180-day periods for commercial properties held for investment. Choice A is correct because Form 8824 is required to report the exchange and compute basis and gain under Treas. Reg. 1.1031(k)-1(j). Choice B is incorrect as Form 6252 is for installment sales, not exchanges; choice C is wrong because Form 8949 is for capital sales, not exchanges; choice D is incorrect since reporting is required even without boot. To apply like-kind exchange rules correctly, identify replacement property within 45 days. Deferred gain is handled through basis adjustment in the replacement property.

Question 6

1. Unimproved investment land exchanged for an investment office building, because both are real property held for investment. (correct answer)
2. Unimproved investment land exchanged for shares of a real estate investment trust, because both are real estate-related investments.
3. Unimproved investment land exchanged for inventory held for sale to customers, because both are tangible property.
4. Unimproved investment land exchanged for a personal residence, because both are real property.

Explanation: Like-kind exchanges under IRC Section 1031 allow taxpayers to defer recognition of gain or loss on the exchange of property held for productive use in a trade or business or for investment when it is exchanged for property of like kind. The taxpayer exchanges unimproved investment land for a commercial office building held for investment via a qualified intermediary. Choice A is correct because both are real property held for investment, qualifying as like-kind under Section 1031. Choice B is incorrect as REIT shares are securities, excluded under Section 1031(a)(2); choice C is wrong because inventory does not qualify per Section 1031(a)(2); choice D is incorrect since personal residences are not held for investment or business use. To apply like-kind exchange rules correctly, ensure identification within 45 days and acquisition within 180 days. Deferred gain reduces the basis of the replacement property, postponing taxation.

Question 7

1. The exchange fails because the taxpayer did not acquire identified replacement property, so gain is recognized as in a taxable sale. (correct answer)
2. The exchange qualifies because acquiring any replacement real property within 180 days satisfies IRC Section 1031.
3. The exchange qualifies only if the taxpayer amends the identification list after day 45.
4. The exchange qualifies only if the replacement property is acquired within 45 days of transfer.

Explanation: Like-kind exchanges under IRC Section 1031 allow taxpayers to defer recognition of gain or loss on the exchange of property held for productive use in a trade or business or for investment when it is exchanged for property of like kind. The taxpayer transfers on April 2, identifies three properties within 45 days, but acquires a non-identified property within 180 days. Choice A is correct because acquiring non-identified property fails the identification requirement, treating it as a sale under Section 1031(k). Choice B is incorrect as specific identification is required; choice C is wrong because amendments after 45 days are not allowed; choice D is incorrect since the acquisition period is 180 days. To apply like-kind exchange rules correctly, provide written identification within 45 days. Deferred gain adjusts the replacement basis for future recognition.

Question 8

1. The exchange fails because the identification rules were not satisfied, so the transfer is treated as a taxable sale. (correct answer)
2. The exchange qualifies because any number of replacement properties may be identified as long as identification is within 45 days.
3. The exchange qualifies only if the taxpayer acquires at least one of the identified properties within 45 days.
4. The exchange qualifies because the 200% rule automatically applies whenever more than three properties are identified.

Explanation: Like-kind exchanges under IRC Section 1031 allow taxpayers to defer recognition of gain or loss on the exchange of property held for productive use in a trade or business or for investment when it is exchanged for property of like kind. The taxpayer identifies four properties within 45 days but fails the identification limitations (three-property or 200% rule). Choice A is correct because violating identification rules disqualifies the exchange, treating it as a sale under Section 1031(k). Choice B is incorrect as unlimited identification is not allowed; choice C is wrong because acquisition timing does not cure identification failure; choice D is incorrect since the 200% rule requires the FMV of identified properties not exceed 200% of relinquished. To apply like-kind exchange rules correctly, limit identification to three properties or meet the 200% rule within 45 days. Deferred gain is handled via basis adjustment if rules are met.

Question 9

1. No, because the taxpayer identified replacement property within 45 days, which is the only timing requirement.
2. Yes, because the exchange period ends on the earlier of 180 days after transfer or the due date (including extensions) of the return, and the taxpayer missed that deadline. (correct answer)
3. No, because the taxpayer can complete the exchange any time within 1 year if a qualified intermediary is used.
4. Yes, because the exchange must be completed within 45 days, not 180 days.

Explanation: Like-kind exchanges under IRC Section 1031 allow taxpayers to defer recognition of gain or loss on the exchange of property held for productive use in a trade or business or for investment when it is exchanged for property of like kind. The taxpayer identifies within 45 days but acquires on day 190, after the return due date without extension. Choice B is correct because the exchange must close by the earlier of 180 days or return due date, leading to recognition under Section 1031(k). Choice A is incorrect as both identification and acquisition timelines matter; choice C is wrong because no 1-year period exists; choice D is incorrect since the period is 180 days. To apply like-kind exchange rules correctly, monitor the dual deadlines for acquisition. Deferred gain adjusts basis if timelines are met.

Question 10

1. The entire exchange qualifies for nonrecognition because any property received in an exchange is treated as like-kind under IRC Section 1031.
2. The exchange qualifies only if the taxpayer holds the stock for investment after the exchange.
3. The stock is non-like-kind property (boot), so gain is recognized to the extent of the fair market value of the stock received, with remaining gain deferred if otherwise qualifying. (correct answer)
4. The exchange is fully taxable because receipt of any non-like-kind property voids IRC Section 1031 treatment for the real property portion.

Explanation: Like-kind exchanges under IRC Section 1031 allow taxpayers to defer recognition of gain or loss on the exchange of property held for productive use in a trade or business or for investment when it is exchanged for property of like kind. This simultaneous exchange involves trading an office building for a warehouse plus publicly traded stock. Choice C is correct because stock is not like-kind to real property, treated as boot under Section 1031(a)(2), triggering gain recognition up to its FMV, with the real property portion potentially qualifying for deferral. Choice A is incorrect as only like-kind property qualifies for nonrecognition; choice B is wrong because the holding purpose must be for investment or business use at the time of exchange; choice D is incorrect since boot triggers partial, not full, recognition per Section 1031(b). To apply like-kind exchange rules correctly, ensure replacement property is identified within 45 days in deferred exchanges. Deferred gain is accounted for by adjusting the basis of the like-kind replacement property, postponing recognition.

Question 11

1. The promissory note is non-like-kind property (boot), so gain is recognized to the extent of the fair market value of the note (limited by realized gain). (correct answer)
2. The promissory note is like-kind to real property because it is related to the real estate transaction.
3. No gain is recognized because boot is only cash, not other property.
4. The entire exchange is disqualified because receipt of a note voids IRC Section 1031 treatment for real property.

Explanation: Like-kind exchanges under IRC Section 1031 allow taxpayers to defer recognition of gain or loss on the exchange of property held for productive use in a trade or business or for investment when it is exchanged for property of like kind. The taxpayer receives a promissory note along with the warehouse. Choice A is correct because notes are boot, triggering gain up to their FMV, limited by realized gain, per Section 1031(b). Choice B is incorrect as notes are not like-kind to real property; choice C is wrong because boot includes non-cash property; choice D is incorrect since boot triggers partial recognition. To apply like-kind exchange rules correctly, identify replacement within 45 days. Deferred gain adjusts the basis downward.

Question 12

1. No, because the identification was timely and acquisition can occur any time before the taxpayer files the return.
2. Yes, because the replacement property must be received by the earlier of 180 days after transfer or the due date (including extensions) of the return, and acquisition after 180 days fails IRC Section 1031 timing. (correct answer)
3. No, because the 180-day period begins on January 1 of the following year.
4. Yes, because IRC Section 1031 requires a simultaneous exchange, not a delayed exchange.

Explanation: Like-kind exchanges under IRC Section 1031 allow taxpayers to defer recognition of gain or loss on the exchange of property held for productive use in a trade or business or for investment when it is exchanged for property of like kind. The transfer occurs on November 15, identification within 45 days, but acquisition on May 20 (over 180 days later). Choice B is correct because the 180-day or return due date rule is violated, leading to gain recognition under Section 1031(k). Choice A is incorrect as acquisition must be within 180 days or return due date; choice C is wrong because the period starts with transfer; choice D is incorrect since deferred exchanges are allowed. To apply like-kind exchange rules correctly, ensure identification within 45 days and acquisition by the deadline. Deferred gain is preserved in the basis for later recognition.

Question 13

1. Attach Form 8824 to report the exchange and disclose boot received and any recognized gain. (correct answer)
2. Attach Form 1099-S to the return to elect deferral under IRC Section 1031.
3. Attach Form 8300 because cash boot was received in connection with a real estate transaction.
4. No form is required if the taxpayer intends to defer gain under IRC Section 1031.

Explanation: Like-kind exchanges under IRC Section 1031 allow taxpayers to defer recognition of gain or loss on the exchange of property held for productive use in a trade or business or for investment when it is exchanged for property of like kind. The taxpayer receives $60,000 cash boot but erroneously reports as a nontaxable rollover without attaching forms. Choice A is correct because Form 8824 must be attached to report the exchange, boot, and any gain under Treas. Reg. 1.1031(k)-1(j). Choice B is incorrect as Form 1099-S is for reporting sales, not elections; choice C is wrong because Form 8300 is for cash transactions over$10,000, not exchange reporting; choice D is incorrect since reporting is required for deferral. To apply like-kind exchange rules correctly, identify within 45 days and acquire within 180 days. Deferred gain is computed on Form 8824 and carried to the basis.

Question 14

1. No, because identification occurred within 45 days and acquisition occurred within 180 days, assuming other IRC Section 1031 requirements are met. (correct answer)
2. Yes, because the taxpayer must acquire replacement property within 45 days of transferring the relinquished property.
3. Yes, because the taxpayer used a qualified intermediary, which is not permitted under IRC Section 1031.
4. No, because the taxpayer has 1 year to identify and acquire replacement property.

Explanation: Like-kind exchanges under IRC Section 1031 allow taxpayers to defer recognition of gain or loss on the exchange of property held for productive use in a trade or business or for investment when it is exchanged for property of like kind. The transfer is on January 10, identification on February 20 (41 days), acquisition on June 15 (156 days). Choice A is correct because the timelines are met, allowing deferral assuming other requirements are satisfied under Section 1031(k). Choice B is incorrect as acquisition is within 180 days, not 45; choice C is wrong because qualified intermediaries are permitted; choice D is incorrect since the period is 180 days, not 1 year. To apply like-kind exchange rules correctly, provide written identification within 45 days. Deferred gain is carried over to the replacement basis for future taxation.

Question 15

1. The exchange qualifies because the replacement property is real property regardless of how it is used after the exchange.
2. The exchange does not qualify because the replacement property is not held for productive use in a trade or business or for investment. (correct answer)
3. The exchange qualifies only if the taxpayer lives in the warehouse for at least 2 years.
4. The exchange qualifies only if the taxpayer recognizes gain equal to the fair market value of the warehouse.

Explanation: Like-kind exchanges under IRC Section 1031 allow taxpayers to defer recognition of gain or loss on the exchange of property held for productive use in a trade or business or for investment when it is exchanged for property of like kind. The exchange is for a warehouse that the taxpayer immediately uses as a primary residence. Choice B is correct because Section 1031 requires the replacement property to be held for investment or business use, and personal use disqualifies it. Choice A is incorrect as the holding intent at receipt matters; choice C is wrong because the 2-year rule applies to Section 121 exclusions, not 1031; choice D is incorrect since full qualification requires proper holding purpose, not partial recognition. To apply like-kind exchange rules correctly, identify replacement property within 45 days in deferred exchanges. Deferred gain is preserved in the replacement property's basis for future recognition.

Question 16

1. The real property portion may qualify under IRC Section 1031, but the inventory is nonqualifying property and is treated as boot, potentially triggering gain recognition. (correct answer)
2. The entire exchange qualifies because inventory is like kind to real property if used in the taxpayer's business.
3. The entire exchange is disqualified because any inclusion of inventory voids IRC Section 1031 treatment for all property transferred.
4. The inventory qualifies under IRC Section 1031 if it is exchanged for real property of equal value.

Explanation: Like-kind exchanges under IRC Section 1031 allow taxpayers to defer recognition of gain or loss on the exchange of property held for productive use in a trade or business or for investment when it is exchanged for property of like kind. The exchange includes transferring inventory along with an office building for a warehouse. Choice A is correct because inventory is excluded under Section 1031(a)(2), treated as boot, while the real property may qualify. Choice B is incorrect as inventory is not like-kind to real property; choice C is wrong because partial qualification is possible; choice D is incorrect since inventory does not qualify regardless of value. To apply like-kind exchange rules correctly, identify replacement property within 45 days in deferred exchanges. Deferred gain on qualifying portions reduces the replacement basis, deferring tax.

Question 17

1. Recognize $30,000 of gain because boot received is always fully taxable.
2. Recognize $18,000 of gain because recognized gain is limited to the lesser of realized gain or boot received. (correct answer)
3. Recognize $0 of gain because the taxpayer received like-kind real property.
4. Recognize $18,000 of ordinary income and defer the remainder as capital gain.

Explanation: Like-kind exchanges under IRC Section 1031 allow taxpayers to defer recognition of gain or loss on the exchange of property held for productive use in a trade or business or for investment when it is exchanged for property of like kind. The exchange involves receiving $30,000 cash boot with a realized gain of$18,000. Choice B is correct because recognized gain is the lesser of boot or realized gain under Section 1031(b). Choice A is incorrect as recognition is limited by realized gain, not just boot; choice C is wrong because boot prevents full deferral; choice D is incorrect since gain is not split by character in this manner. To apply like-kind exchange rules correctly, identify replacement property within 45 days and acquire within 180 days. Deferred gain (here, $0 since all is recognized) is handled via basis adjustment in the replacement property.