This document contains 13 exhibits that summarize key provisions related to nonrecognition of gains and losses from property transactions under sections 1031, 1033, and 121 of the Internal Revenue Code. The exhibits cover topics such as like-kind exchanges, involuntary conversions, and the sale of a principal residence. Each exhibit provides an overview of the relevant rules, qualifications, time limitations, and tax treatment for these various property transactions.

1. Chapter 11
Property Transactions:
Nonrecognition of Gains and
Losses
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2. Chapter 11 Exhibits
1. Sale of a Principal Residence
2. Sale of Home by Divorced or Separated Taxpayers
3. Sale of Home Due to Unforeseen Circumstances
4. Like-Kind Exchanges—Tax Treatment for Gain or Loss
5. Like-Kind Exchanges—Tangible Property
6. Like-Kind Exchanges—Boot
7. Like-Kind Exchanges—Assumption of Liabilities
8. Like-Kind Exchanges—Time Limitations
9. Like-Kind Exchanges—Holding Period Rules
Chapter 11, Exhibit Contents A CCH Federal Taxation Basic Principles 2 of 20

3. Chapter 11 Exhibits
10. Involuntary Conversions—What Qualifies
11. Involuntary Conversions—Rules
12. Involuntary Conversions—Time Limitations
13. Involuntary Conversions—Holding Period Rules
Chapter 11, Exhibit Contents B CCH Federal Taxation Basic Principles 3 of 20

4. Sale of a Principal Residence
Amount and tax effect of the exclusion
 $250,000 (Married individuals filing jointly may exclude
up to $500,000.)
 This is a permanent exclusion, not just a deferral or
rollover of gain until a later time. Moreover, there is no
reinvestment requirement.
Chapter 11, Exhibit 1a CCH Federal Taxation Basic Principles 4 of 20

5. Sale of a Principal Residence
Qualifying for the exclusion
 Own and use the property as a principal residence for an
aggregate of at least two of the five years preceding the sale or
exchange and,
 Not claim the exclusion during the two years immediately
preceding the sale.
Chapter 11, Exhibit 1b CCH Federal Taxation Basic Principles 5 of 20

6. Sale of Home by Divorced or Separated
Taxpayers
Ownership: If a residence is transferred to a taxpayer under a
divorce or separation instrument, the time during which the
taxpayer’s spouse or former spouse owned the residence is
added to the taxpayer’s period of ownership.
Use: A taxpayer who owns a residence is deemed to have
occupied it as a principal residence while the taxpayer’s
spouse or former spouse is given use of the residence under
the terms of a divorce separation.
Chapter 11, Exhibit 2 CCH Federal Taxation Basic Principles 6 of 20

7. Sale of Home Due to Unforeseen Circumstances
If a change in place of employment, health, or other
unforeseen circumstances precipitate a sale or exchange before
any the exclusion requirements are satisfied, the exclusion
may be prorated.
The amount of gain that may be excluded is calculated the
lesser of:
1. number of months of ownership and use or
2. number of months since the previous sale.
Divide (1) or (2) by 24 months and multiply by the maximum
exclusion ($250,000 single or $500,000 married filing jointly)
Chapter 11, Exhibit 3 CCH Federal Taxation Basic Principles 7 of 20

8. Like-Kind Exchanges—
Tax Treatment for Gain or Loss
Mandatory Rule
Code Section 1031 No gain or loss is recognized on the
exchange of trade, business or investment use property if such
property is exchanged SOLELY for like-kind property.
Deferral of any remaining gain or loss is mandatory, not
elective.
Recognized gain is the lesser of:
1. Realized gain
2. Net boot received
Chapter 11, Exhibit 4 CCH Federal Taxation Basic Principles 8 of 20

9. Like-Kind Exchanges—Tangible Property
What qualifies as a like-kind exchange?
 Real property for real property is OK.
 Tangible personal for tangible personal may be OK, if the
assets fall within the same asset class.
 Personal property for real property, or vice versa, is NOT OK
 Inventory for anything is NOT OK.
 Personal-use property for anything is NOT OK.
Chapter 11, Exhibit 5 CCH Federal Taxation Basic Principles 9 of 20

10. Like-Kind Exchanges—Boot
Boot is property exchanged that is not like-kind (for example,
cash or relief of mortgage liability)
When boot is received, realized gains are recognized to the
extent of boot received. Recognized gains cannot exceed
realized gains. Losses are not recognized in boot received
situations.
When boot is given, gains and losses are recognized
(regardless of the amount realized) when the FMV of the boot
is different from its basis. It’s like the boot is sold separately
from the like-kind property.
Chapter 11, Exhibit 6 CCH Federal Taxation Basic Principles 10 of 20

11. Like-Kind Exchanges—Assumption of Liabilities
If a liability (i.e. mortgage) is assumed by the transferee, the
assumption is treated like boot received by the transferor.
The transferor will recognize gain to the extent of boot
received (not to exceed realized gain). It is treated as if the
transferor received cash and then paid off the liability.
If the transferor also assumes a liability, the assumption is
treated like boot given and may offset the amount of
liabilities treated as boot received.
Chapter 11, Exhibit 7 CCH Federal Taxation Basic Principles 11 of 20

12. Like-Kind Exchanges—Time Limitations
Time Limitation
Two time limitations govern like-kind exchanges under the
Starker rule (named after a landmark court case):
1. Identification requirement. Like-kind property to be
received must be identified within 45 days of the date that
the like-kind property is given.
2. Receipt requirement. Like-kind property must be
received within 180 days of the date that the like-kind
property is given.
Chapter 11, Exhibit 8 CCH Federal Taxation Basic Principles 12 of 20

13. Like-Kind Exchanges—Holding Period Rules
The holding period of like-kind property and boot are:
1. Like-kind property received. Same as the holding period of
the like-kind property given.
2. Boot received. Begins on the day following the day of
receipt.
Chapter 11, Exhibit 9 CCH Federal Taxation Basic Principles 13 of 20

14. Involuntary Conversions—What Qualifies
Qualified Events
Code Sec. 1033 applies to involuntary conversions occurring through
casualty, theft or condemnation. A casualty qualifies for special tax
treatment if it is caused by some sudden event such as fire, storm or
shipwreck.
A condemnation qualifies if there is confirmation that property is going
to be taken for public purposes. News reports are not deemed to be
confirmations.
Chapter 11, Exhibit 10a CCH Federal Taxation Basic Principles 14 of 20

15. Involuntary Conversions—What Qualifies
Qualifying Like-Kind Property
Code Sec. 1033 is more restrictive than Code Sec. 1031, except for the
replacement of condemned real property. Generally, Code Sec. 1033
replacement property must be used in substantially the same way as the
involuntary conversion property.
Real for real is not always OK; (e.g., timberland - a bowling alley,
unless one of the real properties had been condemned. Only condemned
real property gets the same like-kind flexibility afforded Code Sec. 1031
property)
Personal for personal is not always OK; (e.g., delivery truck - business
car is NOT OK; however a delivery truck for a delivery truck, or a
business car for a business car, is OK.)
Chapter 11, Exhibit 10b CCH Federal Taxation Basic Principles 15 of 20

16. Involuntary Conversions—Rules
Mandatory Rules
1. If the award is like-kind property (not cash), no gain is recognized.
Basis of replacement property equals adjusted basis of old property.
2. Realized losses must be recognized (if allowed). The basis of
replacement property is its cost.
Losses from business or income producing property are recognized.
Losses from casualty or theft of personal-use property are recognized.
Losses from condemnation of personal use property are NOT
recognized.
Chapter 11, Exhibit 11a CCH Federal Taxation Basic Principles 16 of 20

17. Involuntary Conversions—Rules
Elective Rules
1. If the cost of replacement property exceeds the amount realized
(i.e., cash received) an election may be made to defer all of the gain.
2. If the amount realized exceeds the cost of the replacement property,
the taxpayer may make an election to recognize gain for the amount
in excess.
In a situation where a gain occurs from the involuntary conversion
of a principal residence, the amount realized is reduced by the gain
excluded (up to $500,000 married filing jointly or $250,000 single)
The basis of replacement property is its cost less deferred gain.
Chapter 11, Exhibit 11b CCH Federal Taxation Basic Principles 17 of 20

18. Involuntary Conversions—Time Limitations
Two time limitations govern like-kind replacement of
involuntary conversions property:
1. Earliest date to replace involuntary conversion. The
earlier of:
(a) Date of disposition of the involuntary conversion
property; or
(b) Earliest date of threat of disposition. (Note that
casualties and thefts occur "suddenly,"
therefore (b) would apply only to condemnations.)
Chapter 11, Exhibit 12a CCH Federal Taxation Basic Principles 18 of 20

19. Involuntary Conversions—Time Limitations
2. Latest date to replace involuntary conversion. Like-kind
property must be received or purchased:
(a) Condemned real property. Within 3 years after the end
of the taxable year in which gain is first realized.
(b) All other qualified property. Within 2 years after the end
of the taxable year in which gain is realized for:
(i) Real casualty or theft property;
(ii) Personal property.
Chapter 11, Exhibit 12b CCH Federal Taxation Basic Principles 19 of 20

20. Involuntary Conversions—Holding Period Rules
The holding period of like-kind property and boot are the
same as under Code Sec. 1031:
1. Like-kind property received. Same as holding period
of the involuntarily-converted property.
2. Non like-kind property received. Begins on the day
following the date of receipt.
Chapter 11, Exhibit 13 CCH Federal Taxation Basic Principles 20 of 20