Page 107 - 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.
the fair market value of any unlike property you $1,000 a. Any money you receive.
received. Reduce this amount (but not below Money received (cash) . . . . . . . . . . . . . . . b. Any loss you recognize on the ex-
Money received (liability assumed by other
zero) by any exchange expenses (closing party) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000 change.
costs) you paid. Compare that amount to your Total money and unlike property received . . . $4,000
gain realized. Your recognized (taxable) gain is Minus: Exchange expenses paid . . . . . . . . . (500) Allocate this basis first to the unlike property,
the smaller of the two. Recognized gain . . . . . . . . . . . . . . $3,500 other than money, up to its fair market value on
the date of the exchange. The rest is the basis
Example. You exchange real estate held of the like-kind property.
for investment with an adjusted basis of $8,000 Example. The facts are the same as in the
for other real estate you now hold for invest- previous example, except the property you re- Multiple Property Exchanges
ment. The fair market value (FMV) of the real ceived had an FMV of $14,000 and was subject
estate you received was $10,000. You also re- to a $4,000 mortgage that you assumed. Figure
ceived $1,000 in cash. You paid $500 in ex- the gain realized as follows. Under the like-kind exchange rules, you must
change expenses. generally make a property-by-property compari-
FMV of like-kind property received . . . . . . . $14,000 son to figure your recognized gain and the basis
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000 of the property you receive in the exchange.
FMV of like-kind property received . . . . . . . . $10,000 Mortgage assumed by other party . . . . . . . . 3,000 However, for exchanges of multiple properties,
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000 Total received . . . . . . . . . . . . . . . . . . . . . $18,000 you do not make a property-by-property com-
Total received . . . . . . . . . . . . . . . . . . . . . . $11,000 Minus: Exchange expenses . . . . . . . . . . . . (500) parison if you do either of the following.
Minus: Exchange expenses paid . . . . . . . . . (500) Amount realized . . . . . . . . . . . . . . . . . . . . $17,500 • Transfer and receive properties in two or
Amount realized . . . . . . . . . . . . . . . . . . . . $10,500 Minus: Adjusted basis of property you more exchange groups.
Minus: Adjusted basis of property you transferred . . . . . . . . . . . . . . . . . . . . . . . . (8,000) • Transfer or receive more than one property
transferred . . . . . . . . . . . . . . . . . . . . . . . . (8,000) Minus: Mortgage you assumed . . . . . . . . . . (4,000)
Realized gain . . . . . . . . . . . . . . . . $2,500 within a single exchange group.
Realized gain . . . . . . . . . . . . . . . . $5,500 In these situations, you figure your recognized
Although the total gain realized on the trans- gain and the basis of the property you receive
action is $2,500, the recognized (taxable) gain The realized gain is recognized (taxable) by comparing the properties within each ex-
is only $500, figured as follows. gain only up to $500, figured as follows. change group.

Money received (cash) . . . . . . . . . . . . . . . . . $1,000 Money received (cash) . . . . . . . . . $1,000 Like-Kind Exchanges
Money received (net liabilities
Minus: Exchange expenses paid . . . . . . . . . . (500) assumed by other party): Between Related Persons
Recognized gain . . . . . . . . . . . . . . . $500 Mortgage assumed by other
party . . . . . . . . . . . . . . . . . . . $3,000 Special rules apply to like-kind exchanges be-
Assumption of liabilities. For purposes of fig- Minus: Mortgage you . . . . . . . . . . (4,000) tween related persons. These rules affect both
.
assumed .
.
.
.
.
.
uring your realized gain, add any liabilities as- Total (not below zero) . . . . . . . . . . . . . $0 direct and indirect exchanges. Under these
sumed by the other party to your amount real- Total money and unlike property received . . . $1,000 rules, if either person disposes of the property
ized. Subtract any liabilities of the other party Minus: Exchange expenses paid . . . . . . . . . (500) within 2 years after the exchange, the exchange
that you assume from your amount realized. Recognized gain . . . . . . . . . . . . . . $500 is disqualified from nonrecognition treatment.
For purposes of figuring the limit of recog- The gain or loss on the original exchange must
nized gain, if the other party to a nontaxable ex- be recognized as of the date of the later dispo-
change assumes any of your liabilities, you will Unlike property given up. If, in addition to sition.
be treated as if you received money in the like-kind property, you give up unlike property,
amount of the liability. You can decrease (but you must recognize gain or loss on the unlike Related persons. Under these rules, related
not below zero) the amount of money you are property you give up. The gain or loss is equal persons include, for example, you and a mem-
treated as receiving by the amount of the other to the difference between the fair market value ber of your family (spouse, siblings, parent,
party's liabilities that you assume and by any of the unlike property and the adjusted basis of child, etc.), you and a corporation in which you
cash you pay or unlike property you give up. For the unlike property. have more than 50% ownership, you and a
more information on the assumption of liabili- partnership in which you directly or indirectly
ties, see section 357(d) of the Internal Revenue Example. You exchange stock and real es- own more than a 50% interest of the capital or
Code. For more information on the treatment of tate you held for investment for real estate you profits, and two partnerships in which you di-
the assumption of liabilities in a sale or ex- also intend to hold for investment. The stock rectly or indirectly own more than 50% of the
change, see Treasury Regulations section you transfer has a fair market value of $1,000 capital interests or profits.
1.1031(d)-2. and an adjusted basis of $4,000. The real es- An exchange structured to avoid the
tate you exchange has a fair market value of
Example. The facts are the same as in the $19,000 and an adjusted basis of $15,000. The ! related party rules is not a like-kind ex-
change.
previous example, except the property you real estate you receive has a fair market value CAUTION
gave up was subject to a $3,000 mortgage for of $20,000. You do not recognize gain on the For more information on related persons,
which you were personally liable. The other exchange of the real estate because it qualifies see Nondeductible Loss under Sales and Ex-
party in the trade agreed to pay off the mort- as a nontaxable exchange. However, you must changes Between Related Persons in chap-
gage. Figure the gain realized as follows. recognize (report on your return) a $3,000 loss ter 2.
on the stock because it is unlike property.
Example. You own real property used in
FMV of like-kind property received . . . . . . . $10,000 Basis of property received. The total basis your business. Your sister owns real property
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000 for all properties (other than money) you receive
Mortgage assumed by other party . . . . . . . . 3,000 in a partially nontaxable exchange is the total used in her business. In December 2021, you
Total received . . . . . . . . . . . . . . . . . . . . . $14,000 adjusted basis of the properties you give up, exchanged your property plus $15,000 for your
Minus: Exchange expenses . . . . . . . . . . . . (500) with the following adjustments. sister's property. At that time, the fair market
Amount realized . . . . . . . . . . . . . . . . . . . . $13,500 value of your real property was $200,000 and
Minus: Adjusted basis of property you 1. Add both of the following amounts. its adjusted basis was $65,000. The fair market
transferred . . . . . . . . . . . . . . . . . . . . . . . . (8,000) value of your sister's real property was
Realized gain . . . . . . . . . . . . . . . . $5,500 a. Any additional costs you incur. $215,000 and its adjusted basis was $70,000.
b. Any gain you recognize on the ex- You realized a gain of $135,000 (the $215,000
The realized gain is recognized (taxable) change. fair market value of the real property received,
gain only up to $3,500, figured as follows. minus the $15,000 you paid, minus your
2. Subtract both of the following amounts. $65,000 adjusted basis in the property). Your
sister realized a gain of $145,000 (the $200,000
Page 16 Chapter 1 Gain or Loss