Taxation for Decision Makers, 2012 Edition

chapter 8

Tax-Deferred Exchanges

CHAPTER OUTLINE

Setting the Stage—An Introductory Case

Basics of Tax-Deferred Exchanges

Like-Kind Exchanges—Section 1031

Other Tax-Deferred Exchanges

Involuntary Conversions

Asset Transfers to Businesses

Corporate Reorganizations

Revisiting the Introductory Case

Summary

Key Terms

Test Yourself

Problem Assignments

Answers to Test Yourself

Appendix 8A Reorganizations

Most taxpayers would like to arrange their property transactions so they can recognize their losses and avoid recognizing their gains. Absent the complete nonrecognition of gain, the deferral of gain recognition reduces taxes due to the time value of money. This chapter focuses on provisions that defer gains such as like-kind exchanges, involuntary conversions, and transfers to businesses by their owners. Taxpayers must follow specific rules, however, to take advantage of gain deferral.

Some of these transactions, such as like-kind exchanges and asset transfers to businesses by their owners, defer losses as well as gains. If the taxpayer wants to recognize the loss rather than deferring it, the relevant provisions must be understood so that a transaction will not qualify for loss deferral.

An important set of deferral provisions allows taxpayers to transfer assets to sole proprietorships, partnerships, or controlled corporations in exchange for an ownership interest in the business. These provisions allow the tax laws to remain neutral in relation to the selection of business form by ...