J.K. Lasser's Your Income Tax 2023, 2nd Edition

CHAPTER 6Tax‐Free Exchanges of Property

6.1	Like‐Kind Exchanges of Real Property Used for Investment or Business	159
6.2	Receipt of Cash and Other Property—“Boot”	160
6.3	Time Limits and Security Arrangements for Deferred Exchanges	163
6.4	Qualified Exchange Accommodation Arrangements (QEAAs) for Reverse Exchanges	165
6.5	Exchanges Between Related Parties	166
6.6	Property Transfers Between Spouses and Ex‐Spouses	167
6.7	Tax‐Free Exchanges of Stock in Same Corporation	169
6.8	Joint Ownership Interests	170
6.9	Setting up Closely Held Corporations	170
6.10	Tax‐Free Exchanges of Insurance Policies	171

You may exchange investment or business real property for “like‐kind” real 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 $50,000 for property worth $250,000, the basis of the property received in exchange is fixed at $50,000, even though its fair market value is $250,000. The gain of $200,000 ($250,000 ‐ $50,000), which is not taxed at the time of the exchange, is technically called “unrecognized gain.” If you later sell the new property for $350,000, you will realize a taxable gain of $300,000 ($350,000 ‐ $50,000).

Where property received in a tax‐free ...