Page 103 - Virtual Currencies

12:10 - 7-Feb-2023
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Fileid: … tions/p544/2022/a/xml/cycle03/source
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
other party who transfers the property to you The rules for like-kind exchanges do not ap- property can still be considered like-kind prop-
does not give you the title, but a third party ply to exchanges of the following property. erty under the rules for replacing condemned
does, you can still treat this transaction as a • Real property used for personal purposes, property to postpone reporting gain on the con-
like-kind exchange if it meets all the require- such as your home. demnation. See Postponement of Gain under
ments. • Real property held primarily for sale. Involuntary Conversions, earlier.
• Any personal or intangible property.
Basis of property received. If you acquire You may have a nontaxable exchange under Deferred Exchange
property in a like-kind exchange, the basis of other rules. See Other Nontaxable Exchanges,
the property you receive is generally the same later. A deferred exchange is an exchange in which
as the basis of the property you transferred. you transfer property you use in business or

Example. You exchanged real estate held A dwelling unit (home, apartment, condo- hold for investment and later receive like-kind
property you will use in business or hold for in-
for investment with an adjusted basis of minium, or similar property) may, for purposes vestment. The property you receive is the re-
$25,000 for other real estate held for invest- of a like-kind exchange, qualify as property held placement property. The transaction must be an
ment. The basis of your new property is the for productive use in a trade or business or for exchange of property for property rather than a
same as the basis of the old property ($25,000). investment purposes if certain requirements are transfer of property for money used to buy re-
For the basis of property received in an ex- met. See Revenue Procedure 2008-16, placement property. In addition, the replace-
change that is only partially nontaxable, see 2008-10 I.R.B. 547, available at IRS.gov/irb/ ment property will not be treated as like-kind
2008-10_IRB/ar12.html.
Partially Nontaxable Exchanges, later. property unless the identification and the re-
Money paid. If, in addition to giving up An exchange of the assets of a business for ceipt requirements (discussed later) are met.
like-kind property, you pay money in a like-kind the assets of a similar business cannot be trea- If, before you receive the replacement prop-
exchange, the basis of the property received is ted as an exchange of one property for another erty, you actually or constructively receive
the basis of the property given up, increased by property. Whether you engaged in a like-kind money or unlike property in full consideration for
the money paid. exchange depends on an analysis of each as- the property you transfer, the transaction will be
set involved in the exchange. However, see treated as a sale rather than a deferred ex-
Reporting the exchange. Report the ex- Multiple Property Exchanges, later. change. In that case, you must recognize gain
change of like-kind property, even though no or loss on the transaction, even if you later re-
gain or loss is recognized, on Form 8824, Like-Kind Property ceive the replacement property. It would be
Like-Kind Exchanges. The Instructions for Form treated as if you bought the replacement prop-
8824 explain how to report the details of the ex- To qualify for the non-recognition rules, there erty.
change. must be an exchange of like-kind property.
If you have any recognized gain because Like-kind properties are properties of the same If, before you receive the replacement prop-
you received money or unlike property, report it nature or character, even if they differ in grade erty, you actually or constructively receive
on Form 8949, Schedule D (Form 1040), or or quality. The exchange of real estate for real money or unlike property in less than full con-
Form 4797, as applicable. See chapter 4. You estate is an exchange of like-kind property. sideration for the property you transfer, the
may have to report the recognized gain as ordi- transaction will be treated as a partially taxable
nary income from depreciation recapture. See An exchange of personal property for real exchange. See Partially Nontaxable Ex-
Like-kind exchanges and involuntary conver- property does not qualify as a like-kind ex- changes, later.
sions in chapter 3. change.
Exchange expenses. Exchange expenses An exchange of city property for farm prop- Actual and constructive receipt. For purpo-
ses of a deferred exchange, you actually re-
are generally the closing costs you pay. They erty, or improved property for unimproved prop- ceive money or unlike property when you re-
include such items as brokerage commissions, erty, is a like-kind exchange. ceive the money or unlike property or receive
attorney fees, and deed preparation fees. Sub- the economic benefit of the money or unlike
tract these expenses from the consideration re- property. You constructively receive money or
ceived to figure the amount realized on the ex- The exchange of real estate you own for a unlike property when the money or unlike prop-
change. If you receive cash or unlike property in real estate lease that runs 30 years or longer is erty is credited to your account, set apart for
addition to the like-kind property and realize a a like-kind exchange. However, not all ex- you, or otherwise made available for you so that
gain on the exchange, subtract the expenses changes of interests in real property qualify. you can draw upon it at any time or so that you
from the cash or fair market value of the unlike The exchange of a life estate expected to last can draw upon it if you give notice of intention to
property. Then, use the net amount to figure the less than 30 years for a remainder interest is not do so. You do not constructively receive money
recognized gain. See Partially Nontaxable Ex- a like-kind exchange. or unlike property if your control of receiving it is
changes, later. subject to substantial limitations or restrictions.
An exchange of a remainder interest in real However, you constructively receive money or
Qualifying Property estate for a remainder interest in other real es- unlike property when the limitations or restric-
tate is a like-kind exchange if the nature or char-
tions lapse, expire, or are waived.
The nonrecognition rules for like-kind ex- acter of the two property interests is the same. The following rules also apply.
changes apply only to exchanges of real prop- • Whether you actually or constructively re-
erty (as defined in Treasury Regulations section Foreign Real Property Exchanges ceive money or unlike property is deter-
1.1031(a)-1(a)(3) held for investment or for pro- mined without regard to your method of ac-
ductive use in your trade or business and is not Real property located in the United States and counting.
held primarily for sale. real property located outside the United States • Actual or constructive receipt of money or
are not considered like-kind property. If you ex- unlike property by your agent is actual or
In a like-kind exchange, both the real prop- change foreign real property for property loca- constructive receipt by you.
erty you give up and the real property you re- ted in the United States, your gain or loss on the • Whether you actually or constructively re-
ceive must be held by you for investment or for exchange is recognized. Foreign real property ceive money or unlike property is deter-
productive use in your trade or business. Build- is real property not located in a state or the Dis- mined without regard to certain arrange-
ings, land, and rental property are examples of trict of Columbia. ments you make to ensure the other party
property that may qualify. carries out its obligations to transfer the re-
This foreign real property exchange rule placement property to you. See Safe Har-
does not apply to the replacement of con- bors Against Actual and Constructive Re-
demned real property. Foreign and U.S. real ceipt in Deferred Exchanges, later.

Page 12 Chapter 1 Gain or Loss