REAL ESTATE Section 1031 Tax-Deferred Exchanges

What length of time is the total exchange period in a 1031 tax-deferred exchange?

180 calendar days

Which of the following is true per the IRS's safe harbor guidelines when a taxpayer considers using a 1031 exchange for a property?

A taxpayer may have a rental and occasionally use it for personal enjoyment, and the property may qualify for an exchange

For how long may a replacement property be parked with an exchange accommodation titleholder in a 1031 tax-deferred exchange?

For up to 180 days

When an investor uses equity to fix up a replacement property, he may do this type of exchange

Improvement exchange

What's the benefit of a Delaware Statutory Trust in a 1031 tax-deferred exchange?

It's a repository for investment sales proceeds as a passive investment.

This is when one property is relinquished, and a similar property acquired.

Like-kind exchange

Which of the following marked the beginning of delayed tax-deferred like-kind exchanges?

The Supreme Court case, Starker vs. US

Which of these factors would determine a taxpayer's principal residence? Select the three that apply.

The property address used for voter registration. The location where the taxpayer receives bills. The property address shown on tax return filings

With a reverse 1031 exchange, what initially happens with the replacement property?

The property is parked with an exchange accommodation titleholder.

Would a taxpayer's beachfront property, used as a rental property before the taxpayer made it her private residence, qualify for tax deferral upon sale of the property?

Yes, if the property qualifies per 1031 and 121 criteria

Molly relinquished an investment property as part of a 1031 tax-deferred exchange. She's using a Delaware Statutory Trust to complete the exchange. What's a Delaware Statutory Trust?

an account for accepting sale proceeds

To determine whether a property qualifies for a 1031 tax-deferred exchange, with whom should a potential exchanger speak?

an accountant

What's a qualified intermediary in a 1031 tax-deferred exchange?

an exchange facilitator

Which of the following specifies the details of the property being exchanged in a 1031 tax-deferred exchange?

exchange agreement

Leo wants to make improvements to a replacement property he identified for a 1031 tax-deferred exchange. What's he required to do if he wants to take advantage of an improvement exchange?

exchange equity

Ray is doing a 1031 tax-deferred exchange of his property. During which of the following time periods must his replacement property be acquired?

exchange period

David is doing a 1031 tax-deferred exchange of his rental property. What is David's role in this process?

exchanger

What's another term for a 1031 exchange?

like-kind

In a 1031 exchange, what results from a replacement property having less mortgage debt than the relinquished property?

mortgage boot

What does the 200% identification rule in a 1031 tax-deferred exchange permit?

multiple properties, as long as they don't exceed 200% of the relinquished property's value

Which of the following is a like-kind property in a 1031 tax-deferred exchange in IRS terms?

one used for investment or business purposes

Which of these was a 1031 tax-deferred exchange-related court case now tied to exchanges?

starker

What was relevant to 1031 exchanges in the Revenue Act of 1918?

the first tax code was implemented

Which of the following refers to income credited to an account or made available to an individual?

Constructive receipt

Which of the following could an investor who sells an apartment house buy using a 1031 exchange?

Duplex, office building, or warehouse

What must an investor planning to do a 1031 tax-deferred exchange do to avoid paying taxes on the proceeds from the relinquished property?

Ensure the proceeds go into a safe harbor

When the taxpayer will carry less debt on the replacement property than that carried on the relinquished property, he must pay taxes on this

Mortgage boot

The property that's acquired in a 1031 tax-deferred exchange

Replacement property

Which of these describes a reverse 1031 exchange?

Replacement property is acquired before original property is relinquished

A 1031 exchange when a replacement property is purchased before the relinquished property is sold

Reverse exchange

What do IRS safe harbor guidelines mean for taxpayers using a 1031 exchange?

The IRS won't challenge whether a dwelling unit qualifies as property held for investment or business purposes.

Which of the following statements about 1031 exchange law is true?

The question of using a 1031 exchange for a vacation home can be a legal gray area

Which of these identification rules in a 1031 tax-deferred exchange permits multiple properties as long as they total at least a specific percentage of the relinquished property's value?

95% rule

Which of the following statements about a seller's decision to use a property in a 1031 exchange is true?

A qualified tax or legal professional should help the seller determine tax ramifications

Which of these agreements should include notice of the exchanger's intent for property to be part of a 1031 tax-deferred exchange?

Both the listing agreement and the purchase agreement, or addendum

Which of the following options might be a 1031 alternative for an investor who's coming up on the 180-day exchange period deadline and hasn't acquired a replacement property?

Invest through a Delaware Statutory Trust.

What are three of the benefits investors can reap using a 1031 tax-deferred exchange?

Investors have the opportunity to defer all of their capital gains taxes, with no limit on the number of times it's used.

Investors who own investment or business properties such as buildings, land, or rental houses ______.

May qualify for a 1031 exchange

How does the 1031 tax-deferred exchange law work related to paying taxes when a property is held for productive use in a business or for investment?

No gain or loss will be recognized on the property exchange.

Which of the following property types is permissible for an exchange under the 1031 exchange law?

Parking lot

A § 1031 exchange applies to which of these property types?

Real property only

The property that's given up in a tax-deferred exchange

Relinquished property

Which of these entities sets up and sells Delaware Statutory Trusts?

Securities brokers

How would an investor know if a declared disaster impacts her 1031 tax-deferred exchange deadline?

She'll need to read the IRS disaster relief notice.

Mitzi purchased a property seven years ago and has rented it to the same tenant ever since. To use the property in a 1031 exchange, which of the following is true?

Since the property has been used for rental purposes, it qualifies for a 1031 excahnge

Calli is an investor who's performing a like-kind, or 1031, exchange. This is a type of ______.

Tax-deferred exchange

When working with clients through a 1031 tax-deferred exchange, what's the greatest caution licensees should keep in mind?

They should stay within the boundaries of their real estate license.

For what purpose are Delaware Statutory Trusts formed?

To hold proceeds from investment property

Marie purchases a house with the intent of renting it out for cash flow. This property would be eligible for a like-kind exchange when she's ready to sell.

True

Is there ever an exception to the 1031 tax-deferred exchange deadlines?

Yes, if the federal government declares a disaster.

Before a second home may be sold in a 1031 exchange, how long does the investor have to own it?

at least 2 years

Which one of the following statements is true regarding the holding period requirement for a 1031 exchange?

the tax code doesn't specify a holding period

What's the main incentive for an investor to use a 1031 tax exchange?

to defer paying taxes

What does an improvement exchange in a 1031 tax-deferred exchange permit?

use of exchange equity to make improvements to a replacement property

How long is the identification period in a 1031 tax-deferred exchange?

45 days

What's another name for a reverse 1031 exchange?

A reverse Starker

How many months prior to a 1031 exchange must a taxpayer own a second home or vacation home?

At least 24 months

What's the relinquished property in a 1031 tax-deferred exchange?

The property that's being given up

The entity doing the tax-deferred, like-kind exchange of property is called the ______.

the exchanger

Which of these are the names for the identification rule options in a 1031 tax-deferred exchange?

three property, 95%, and 200%

You remind your client, Trevon, that he has a maximum of ________ days to be in compliance with the replacement rule when participating in a like-kind exchange.

180

In a reverse 1031 exchange transaction, how long may a replacement property be in the parked phase?

180 days

Which of these identification rules in a 1031 tax-deferred exchange permits identification of unlimited replacement properties as long as their cumulative value doesn't exceed 200% of the relinquished property's value?

200% rule

The exchange of real estate owned for a real estate lease that runs ______ is a like-kind exchange; however, not all exchanges of interests in real property qualify.

30 years or longer

Chris has sold a property in a 1031 exchange. How many days does he have to identify a replacement property?

45 days

Which of the following is true about 1031 exchanges?

A 1031 exchange can take place when business or investment property is exchanged solely for business or investment property of a like-kind.

Which of these entities may take advantage of a 1031 tax-deferred exchange?

A corporation that owns rental units

What's a Starker exchange?

A delayed like-kind exchange

Which of these would the IRS consider an unrelated person (to a taxpayer)?

A first cousin

What's a Delaware Statutory Trust in a 1031 tax-deferred exchange?

A legal entity for holding proceeds from an investment property

What's a reverse exchange considered to be in relation to a 1031 tax-deferred exchange?

A more complex exchange

For investors who have an undivided fractional interest in a Delaware Statutory Trust, what does the investor actually own per the IRS?

A security

What does the IRS consider the investor to own if an investor owns an undivided fractional interest in a trust?

A security

What does the investor receive when using a Delaware Statutory Trust in a 1031 tax-deferred exchange?

A security

Which of these was later added to the U.S. income tax code after the code's initial adoption?

A tax-deferred like-kind property or exchange

Which of these entities may use a 1031 tax-deferred exchange for qualifying property?

Anyone with an investment or business property

Craig purchased a vacation home and wants to use a 1031 exchange. How long must he own the vacation home before he can use a 1031 exchange?

At least 24 months

Which of the following refers to money or property received in a 1031 tax-deferred exchange in excess of the value of the exchanged property?

Boot

For a property that's part of a 1031 tax-deferred exchange, who must consent to assigning the contract to a QI?

Both the seller and the buyer of properties involved in an exchange

Your client, Brad, wants to know more about 1031 exchanges. What should you tell Brad?

Brad should meet with a qualified tax professional for accurate information about 1031 exchanges.

Which of the following was accomplished with the adoption of the first U.S. tax code?

Bringing all tax laws together under one code

What are three of the benefits investors can reap using a 1031 tax-deferred exchange?

By deferring taxes, all of the gain from one property can be put into the purchase of another. Investors have the opportunity to defer all of their capital gains taxes, with no limit on the number of times it's used. Investors can potentially defer 100% of their capital gain taxes, both state and federal.

What did the adoption of the first U.S. income tax code accomplish?

Codified all tax laws and implemented an income tax rate structure

John is working with a securities broker in determining which investment property ownership interest will work for his situation. What type of investment vehicle is he looking into?

Delaware Statutory Trust

John sold his single-family home and purchased a new home for his family. Marcus rented his single-family home to a co-worker while he was on an extended two-year military tour overseas. Donald sold an apartment complex and purchased a new complex in a different part of the city. Which of these consumers is most likely to take advantage of a 1031 tax-deferred exchange?

Donald

When must the replacement property be acquired in a 1031 exchange?

During the exchange period

In a reverse 1031 exchange transaction, who owns the replacement property while it's in the parked phase?

Exchange accommodation titleholder

Which of these in a 1031 tax-deferred exchange specifies the details of the property being exchanged?

Exchange agreement

Which of these is the entity doing the tax-deferred, like-kind exchange?

Exchanger

Which of the following statements related to 1031 exchanges is true?

Exchanges are limited to property within the US

Gia owns a rental property in Mexico, but wants to sell it and acquire a rental property in the U.S. Because they're both rental properties, she may use a 1031 tax-deferred exchange.

False

Sean is selling his commercial building. He may use a like-kind exchange to acquire a commercial-use small jet.

False

Once the relinquished property is transferred, which 45-day period for locating a replacement property begins in a 1031 tax-deferred exchange?

Identification period

What should a licensee do if a seller client wants to do a 1031 tax-deferred exchange on her property?

Include notice of intent on the listing agreement or an addendum.

What's the licensee's role when working with a client who's participating in a 1031 tax-deferred exchange?

Information provider

How does the IRS's safe harbor guideline apply to 1031 exchanges?

It allows an investor to occasionally use a rental property for personal enjoyment, and still use it in a 1031 exchange.

What's the benefit for investors who use a 1031 exchange?

It allows sales proceeds from one investment property to be reinvested into another property.

What does the 95% identification rule in a 1031 tax-deferred exchange permit?

Multiple properties may be identified as long as the investor acquires at least 95% of the properties identified

David owns an investment condo in Vancouver, British Columbia, Canada. He'd like to do a 1031 exchange to purchase a similar condo in Vancouver, Washington. Is this permissible?

No; 1031 exchanges are only permitted between U.S. properties.

How can direct deeding be defined in a 1031 tax-deferred exchange?

Property is deeded to the buyer rather than through a qualified intermediary.

What does like-kind exchange law allow in a 1031 tax-deferred exchange?

Property to be sold and replacement property purchased without taxing gains

Which of these does the qualified intermediary do regarding involvement with the replacement property in a 1031 tax-deferred exchange?

Purchases the replacement property and transfers it to the exchanger

Which of these is part of the qualified intermediary's responsibilities concerning the relinquished property in a 1031 tax-deferred exchange?

Receiving the relinquished property from the exchanger

What's another term used for a 1031 tax-deferred exchange?

Starker's exchange

Maxine, who intends to do a 1031 exchange, settled on her house and received a cashier's check for the sales proceeds. Which of the following is true about this situation?

The 1031 exchange is void because she had constructive receipt of funds.

Which identification rule in a 1031 tax-deferred exchange permits multiple properties as long as they don't EXCEED a specific percentage of the relinquished property's value?

The 200% rule

Which identification rule in a 1031 tax-deferred exchange permits the taxpayer to identify more than three properties with a total value exceeding a certain percentage of the value of the relinquished property, but only if the investor acquires a large percentage of the properties identified?

The 95% rule

For a vacation home to qualify for a 1031 exchange, which of the following is true?

The dwelling must be rented out at a fair rental rate for 14 or more days

Which of the following is true about 1031 exchange property holding periods per the tax code?

The holding period isn't specified in the tax code

When an investor purchases a property for a 1031 exchange, which of the following factors is weighed for the property to qualify?

The investor's intent for the property

Carlton purchased a second home for his personal use. When upkeep became too much, he converted it to a rental property. Would the property qualify for a 1031 exchange?

The legal gray area, and we'd need more info to mkae a better determination

Which of the following would disqualify a property from being used in a 1031 exchange?

The property was a primary residence only

The IRS would consider which of the following an "unrelated person" to a taxpayer?

The taxpayer's aunt

Which identification rule in a 1031 tax-deferred exchange permits a certain number of properties with no fair market value restrictions?

The three-property rule

Which of these is one of the three primary identification rules in a 1031 tax-deferred exchange?

The three-property rule

Why might an investor opt for a more complex reverse exchange when doing a 1031 tax-deferred exchange?

This could be due to relinquishment and acquisition timing issues.

Karim received sale proceeds in a 1031 tax-deferred exchange because the replacement property had less mortgage debt than the relinquished property. What can he expect as a result?

This is mortgage boot that's taxable.

Liz takes on less debt with the replacement property than she had with the relinquished property. What can she expect as a result?

This is mortgage boot that's taxable.

Which of these identification rules in a 1031 tax-deferred exchange permits up to a certain number of properties with no fair market value restrictions?

Three-property rule

What does the three-property identification rule in a 1031 tax-deferred exchange permit?

Up to three properties with no fair market value restrictions

Melissa plans to do improvements on a 1031 tax-deferred exchange replacement property she identified. What's she required to do to take advantage of an improvement exchange?

Use a qualified intermediary and exchange accommodation titleholder

In a reverse 1031 exchange, when must the original property be relinquished?

When the Starker exchange is complete

In a 1031 exchange, when are proceeds from a property's sale taxable?

When the investor has constructive receipt of proceeds

When's the best time for a taxpayer to decide whether to use a 1031 tax-deferred exchange for an investment or business-use property?

When the property is being listed

The 1031 tax exchange is used to defer paying taxes when there's an almost immediate repurchase of what?

a like-kind property

What's required in a 1031 exchange to specify the details of the property being exchanged?

an exchange agreement

Which one of the following properties would most likely qualify for a 1031 exchange?

an investment property in Maryland

In a 1031 tax-deferred exchange, what's the term for any money or property received in excess of the value of an exchanged property?

boot

By what measure does the IRS define the total exchange period in a 1031 tax-deferred exchange?

by calendar days

Nico deeds his property to buyer Brenda. What's this called in a 1031 exchange?

direct deeding

What's it called when property is deeded to the buyer in a 1031 tax-deferred exchange rather than through a qualified intermediary?

direct deeding

Bonnie relinquished an investment property as part of a 1031 exchange. What timeframe is she entering into?

exchange period

If Lori does a 1031 exchange with her rental property, replacing it with another similar property, what is Lori's role in this process?

exchanger

Carla, who's doing a 1031 exchange, is trying to locate a potential replacement property before the 45-day deadline. What's this period of time called?

identification period

In a 1031 tax-deferred exchange, if an investor receives mortgage boot, which of the following is true?

it's a gain that's taxable

Which of these is part of the qualified intermediary's involvement with the replacement property in a 1031 tax-deferred exchange?

purchasing it from the seller

A 1031 exchange applies to what type(s) of property?

real property only