J.K. Lasser's Your Income Tax 2014: For Preparing Your 2013 Tax Return

Chapter 6

Tax-Free Exchanges of Property

6.1 Trades of Like-Kind Property

6.2 Personal Property Held for Business or Investment

6.3 Receipt of Cash and Other Property—“Boot”

6.4 Time Limits and Security Arrangements for Deferred Exchanges

6.5 Qualified Exchange Accommodation Arrangements (QEAAs) for Reverse Exchanges

6.6 Exchanges Between Related Parties

6.7 Property Transfers Between Spouses and Ex-Spouses

6.8 Tax-Free Exchanges of Stock in Same Corporation

6.9 Joint Ownership Interests

6.10 Setting up Closely Held Corporations

6.11 Exchanges of Coins and Bullion

6.12 Tax-Free Exchanges of Insurance Policies

You may exchange investment or business property for “like-kind” property without incurring a tax in the year of exchange if you meet the rules detailed in this chapter. Gain may be taxed upon a later disposition of the replacement property because the basis of the replacement property is usually the same as the basis of the property surrendered in the exchange. Thus, if you exchange property with a tax basis of $10,000 for property worth $50,000, the basis of the property received in exchange is fixed at $10,000, even though its fair market value is $50,000. The gain of $40,000 ($50,000 − $10,000), which is not taxed at the time of the exchange, is technically called “unrecognized gain.” If you later sell the property for $50,000, you will realize a taxable gain of $40,000 ($50,000 − $10,000).

Where property received in a tax-free exchange is held until death, the unrecognized ...