Nontaxable Exchanges

<div class="Section1">If a taxpayer’s principal residence is destroyed and the proceeds from insurance are used to purchase a replacement residence, IRC Section 1033 and IRC Section 121 interact as follows:<br /> <ol><br /> <li>For purposes of determining potential gain for purposes of IRC Section 1033, the amount realized is the fair market value of the relinquished property;</li><br /> <li>Next, the amount of gain that would have been excluded pursuant to IRC Section 121 is subtracted from that amount; and</li><br /> <li>Gain is recognized to the extent that the amount computed pursuant to 2), above, exceeds the cost of a replacement home.<a href="#_ftn1" name="_ftnref1">¹</a></li><br /> </ol><br /> <blockquote><em>Example:</em> Asher, a single taxpayer, has a principal residence with a fair market value of $600,000 and a basis of $250,000. In a storm, Asher’s home is totally destroyed. Asher uses $300,000 of the $600,000 insurance proceeds to purchase a new principal residence. Asher’s regular realized gain would be $350,000 ($600,000 minus $250,000). Of that gain, since Asher is a single taxpayer, he may exclude $250,000.<br /> <br /> Step 1 and Step 2. $600,000 insurance proceeds minus the $250,000 gain Asher can exclude pursuant to IRC Section 121 equals $350,000.<br /> <br /> Step 3. Asher used $300,000 of the insurance proceeds to purchase a replacement home. However, since $350,000 (Step 1 and Step 2 amount) exceeds that amount by $50,000, the latter amount is included in gross income. <a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> Asher’s basis should be computed as follows:</blockquote><br /> <ol><br /> <li>Original basis in home - $250,000</li><br /> <li>Gain recognized - $50,000</li><br /> <li>Gain Excluded - $250,000</li><br /> <li>New Basis - $550,000 (1 plus 2 plus 3).</li><br /> </ol><br /> Thus, Asher’s new home has a fair market value of $300,000 and a basis of $550,000. The difference between the fair market value of the home and the basis reflects the $250,000 of excluded IRC Section 121 gain. In essence, with this higher basis, Asher’s exclusion is preserved. So, if Asher sells the home for up to $550,000, no gain is realized.<br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.  IRC § 121(d)(5)(B).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.  Rev. Proc. 2005-14, 2005-7 IRB 492.<br /> <br /> </div>

<div class="Section1">Pursuant to IRC Section 1036, common stock in a corporation may be exchanged for common stock in the same corporation tax-free. The nonrecognition rules of IRC Section&nbsp;1036 apply to exchanges of common stock in the same corporation, even though the stocks are of a different class and have different voting, preemptive, or dividend rights.<a href="#_ftn1" name="_ftnref1">¹</a> Nonrecognition treatment also applies to an exchange of preferred stock for preferred stock in the same corporation. However, gain or loss may be recognized if cash or other property is also received.&nbsp;This treatment applies both to exchanges between an individual shareholder and the corporation and to exchanges between two shareholders. Such an exchange is treated in substantially the same manner as a &ldquo;like-kind&rdquo; exchange (<em><em>see</em></em> Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8665">8665</a> to Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8669">8669</a>).<div class="Section1"><br /> <br /> Finally, the exchange of stock in different corporations and exchanges of common stock for preferred stock do <em>not</em> qualify for nonrecognition treatment even if the shares of stock are similar in all other aspects.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp; Rev. Rul. 72-199, 1972-1 CB 228;&nbsp;Treas. Reg. &sect;&nbsp;1.1036-1.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp; IRC &sect;&nbsp;1036, 1031(a);&nbsp;Treas. Reg. &sect;&nbsp;1.1036-1.<br /> <br /> </div></div><br />

<div class="Section1">If like-kind property is exchanged between persons who are &ldquo;related&rdquo; to each other (as defined in IRC Sections 267(b) or 707(b)(1)), the nonrecognition treatment provided under Section&nbsp;1031 will not apply if either party disposes of the replacement property within two years after the exchange.<a href="#_ftn1" name="_ftnref1">¹</a><div class="Section1"><br /> <br /> If such a disposition is made by either party, then both parties must recognize gain on the exchange in the year of the subsequent disposition.<a href="#_ftn2" name="_ftnref2">²</a> IRC Section&nbsp;1031(f)(2) contains certain specific exceptions to this rule and a general exception for transactions that the IRS concludes did not have tax avoidance as one of the principal purposes.<br /> <br /> As a result, nonrecognition treatment will be permitted if the property was disposed of within two years of the exchange as a result of:<br /> <blockquote>(1)&nbsp; the death of the taxpayer or the related person; or<br /> <br /> (2)&nbsp; an involuntary conversion (<em><em>see</em></em> Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8664">8664</a>) if the exchange occurred before the threat of the conversion arose.<a href="#_ftn3" name="_ftnref3">³</a></blockquote><br /> IRC Section&nbsp;1031(f)(4) provides that if an exchange is part of a transaction (or series of transactions) structured to avoid the related party rules of Section&nbsp;1031, the section will not apply at all (except for subsection (f)(4)) and any gain will be recognized in the year of the original sale.<br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp; IRC &sect;&nbsp;1031(f).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp; IRC &sect;&nbsp;1031(f)(1).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp; IRC &sect;&nbsp;1031(f)(2).<br /> <br /> </div></div><br />

<div class="Section1">In a transaction qualifying for nonrecognition treatment, the property received takes a carryover or transferred basis from the property given up. In this manner, the unrecognized gain or loss on the property disposed of is deferred by becoming the basis of the replacement property to be recognized later when the replacement property is disposed of in a taxable transaction.<a href="#_ftn1" name="_ftnref1">¹</a></div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.  IRC § 1031(d).<br /> <br /> </div>

<div class="Section1">In order to qualify for nonrecognition treatment under IRC Section 1033, the taxpayer must replace the property that has been involuntarily converted within a two-year period. The time period begins to run on the date of the disposition of the converted property or, if the conversion results from condemnation of the property, the date when the condemnation became imminent.<a href="#_ftn1" name="_ftnref1">¹</a></div><br /> <div class="Section1"><br /> <br /> If a taxpayer’s principal residence is destroyed as a result of an involuntary conversion that takes place in a federally-declared disaster area, the time period for purchasing replacement property is extended to four years.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.  IRC § 1033(a)(2)(B).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.  IRC § 1033(h).<br /> <br /> </div>

<div class="Section1">Generally, an individual who sells a principal residence may elect to exclude up to $250,000 of gain from gross income.<a href="#_ftn1" name="_ftnref1">¹</a> However, married couples filing jointly may exclude up to $500,000 if they meet the following requirements:<br /> <blockquote>(1)&nbsp; they must file a joint return for the taxable year of the sale or exchange;<br /> <br /> (2)&nbsp; <em>either</em> spouse must meet the ownership requirements outlined in Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8674">8674</a>;<br /> <br /> (3)&nbsp; <em>both</em> spouses must meet the use requirements outlined in Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8674">8674</a>; and<br /> <br /> (4)&nbsp; <em>neither</em> spouse is ineligible to use the exclusion because he or she had used the exclusion in the two-year period ending on the date of the sale or exchange.<a href="#_ftn2" name="_ftnref2">²</a></blockquote><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp; IRC &sect;&nbsp;121(b).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp; IRC &sect;&nbsp;121(b).<br /> <br /> </div></div><br />

<div class="Section1">Allocation is only required if the property used for business purposes is separate from the taxpayer’s principal residence. However, if a taxpayer uses a <em>non-separate</em> portion of the residence for business and claims a depreciation deduction as a result of such use, the taxpayer may be required to recognize unrecaptured gain under IRC Section 1250.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <blockquote><em>Example:</em> Kacey is a lawyer and has used three rooms in her residence as her law office for a seven year period. Over this period, she claimed depreciation deductions totaling $10,000. Later, she sells the house for a $30,000 gain. She has no other capital gains or losses for the year. She must recognize $10,000 of the gain (an amount equal to her depreciation deductions) but may exclude the remaining $20,000 because she is not required to allocate gain between residential and business use property under Treasury Regulation Section 1.121-1(e)(1). If Kacey had not been entitled to claim depreciation deductions with respect to the business use of the house, the entire $30,000 of gain would be excluded from gross income.<a href="#_ftn2" name="_ftnref2">²</a></blockquote><br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.  Treas. Reg. § 1.121-1(e)(1).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.  Treas. Reg. § 1.121-1(e)(4), Ex.6.<br /> <br /> </div>

<div class="Section1">If certain requirements are met, a noncorporate taxpayer (including certain partnerships and S corporations) may exclude from gross income 100&nbsp;percent of any gain from the sale or exchange of qualified small business stock held for more than five years if the stock was purchased after September&nbsp;27, 2010.<a href="#_ftn1" name="_ftnref1">¹</a> For stock purchased before February 18, 2009, the exclusion was limited to 50 percent, and for stock purchased between February 18, 2009 and September 27, 2010, the exclusion was limited to 75 percent.<a href="#_ftn2" name="_ftnref2">²</a> With certain exceptions, a qualifying small business is:<div class="Section1"><br /> <blockquote>A domestic C corporation (not an S corporation) with aggregate gross assets that do not exceed $50 million between August&nbsp;10, 1993 and the date the stock was issued (the aggregate gross assets also cannot exceed $50 million immediately after the stock was issued);<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> Any trade or business other than one involving the performance of legal, health, engineering, architecture, accounting, actuarial services, or any other trade or business in which the principal asset is the skill or reputation of its employees; and<br /> <br /> At least 80&nbsp;percent of its assets by value must be used in the active conduct of a qualified trade or business.</blockquote><br /> The aggregate amount of eligible gain from the disposition of qualified small business stock issued by one corporation that may be taken into account in a tax year may not exceed the greater of the following amounts:<br /> <blockquote>(a)&nbsp; $10 million ($5 million in the case of married taxpayers filing separately) reduced by the aggregate amount of such gain taken into account in prior years; <em>or</em><br /> <br /> (b)&nbsp; 10 times the aggregate bases of qualified stock of the issuer disposed of during the tax year.</blockquote><br /> For purposes of the limitation in (b), above, the adjusted basis of any qualified stock will not include any additions to basis occurring after the stock was issued.<a href="#_ftn4" name="_ftnref4">⁴</a><br /> <br /> Gain realized by a partner, shareholder, or other participant that is attributable to a disposition of qualified small business stock held by a pass-through entity (i.e., a partnership,<br /> S corporation, regulated investment company, or common trust fund) is eligible for the exclusion if the entity held the stock for more than five years, and if the taxpayer held an interest in the pass-through entity at the time of acquisition and at all times since the acquisition of the stock.<a href="#_ftn5" name="_ftnref5">⁵</a><br /> <br /> Significantly, a taxpayer is not entitled to the Section&nbsp;1202 exclusion as well as the reduced capital gains rates (0&nbsp;percent, 15&nbsp;percent or 20&nbsp;percent). Instead, the tax rate is subject to a maximum rate of 28&nbsp;percent. Coupled with the 50&nbsp;percent exclusion, the actual maximum effective rate on the gain is 14&nbsp;percent.<br /> <br /> Any gain excluded under IRC Section&nbsp;1202 by a married couple filing jointly must be allocated equally between the spouses for purposes of claiming the exclusion in subsequent tax years.<a href="#_ftn6" name="_ftnref6">⁶</a><br /> <br /> Special rules apply to IRC Section&nbsp;1202 stock for alternative minimum tax purposes (<em><em>see</em></em> Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8574">8574</a> to Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8579">8579</a> for a discussion of the AMT). In the case of stock eligible for the 50&nbsp;percent or 75&nbsp;percent exclusion, an amount equal to 7&nbsp;percent of the amount excluded from gross income for the taxable year under IRC Section&nbsp;1202 will be treated as a preference item.<a href="#_ftn7" name="_ftnref7">⁷</a> If the stock is eligible for the 100&nbsp;percent exclusion, no portion of the excluded gain will be treated as a preference item (this provision was made permanent by the PATH Act).<br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp; IRC &sect;&nbsp;1202(a)(4), as amended by ARRA 2009, ATRA and PATH. <em><em>See also</em></em> IRC &sect;&nbsp;1(h)(7).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp; IRC &sect;&nbsp;1202(a)(3).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp; IRC &sect;&nbsp;1202(d)(1)(A).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.&nbsp; IRC &sect;&nbsp;1202(b).<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a>.&nbsp; IRC &sect;&nbsp;1202(g).<br /> <br /> <a href="#_ftnref6" name="_ftn6">6</a>.&nbsp; IRC &sect;&nbsp;1202(b)(3)(B).<br /> <br /> <a href="#_ftnref7" name="_ftn7">7</a>.&nbsp; IRC &sect;&nbsp;57(a)(7).<br /> <br /> </div></div><br />

<div class="Section1">Generally, a noncorporate taxpayer, including certain partnerships and S corporations, may elect to roll over gain from the sale or exchange of qualified small business stock held more than six months to the extent that the taxpayer purchases other qualifying small business stock within 60 days of the sale of the original stock.<a href="#_ftn1" name="_ftnref1">¹</a></div><br /> <div class="Section1"><br /> <br /> If the taxpayer elects to roll over gain on the sale of qualified small business stock, gain will be recognized only to the extent that the amount realized on the sale exceeds (1) the cost of any qualified small business stock purchased by the taxpayer during the 60-day period beginning on the date of the sale, reduced by (2) any portion of such cost previously taken into account under this rollover provision. The rollover provisions of IRC Section 1045 will not apply to any gain that is treated as ordinary income.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> Rules similar to those applicable to rollovers of gain by an individual from certain small business stock<a href="#_ftn3" name="_ftnref3">³</a> will apply to the rollover of such gain by a partnership or S corporation.<a href="#_ftn4" name="_ftnref4">⁴</a> Thus, for example, the benefit of a tax-free rollover with respect to the sale of small business stock by a partnership will flow through to an “eligible partner”—meaning a partner who is not a corporation and who held his partnership interest at all times during which the partnership held the small business stock.<a href="#_ftn5" name="_ftnref5">⁵</a> (A similar rule applies to S corporations and their shareholders.)<a href="#_ftn6" name="_ftnref6">⁶</a><br /> <br /> For the rules regarding (1) the deferral of gain on a partnership’s sale of qualified small business stock followed by an eligible partner’s acquisition of qualified replacement stock, and (2) the deferral of gain on a partner’s sale of qualified small business stock distributed by a partnership, <em><em>see</em></em> Treasury Regulation Section 1.1045-1.<a href="#_ftn7" name="_ftnref7">⁷</a><br /> <br /> Any gain not recognized because of a rollover of qualified small business stock will be applied to reduce (in the order acquired) the basis for determining gain or loss of any qualified small business stock purchased by the taxpayer during the 60-day rollover period.<a href="#_ftn8" name="_ftnref8">⁸</a><br /> <br /> Ordinarily, the holding period of qualified small business stock purchased in a rollover transaction will include the holding period of the stock sold. However, for purposes of determining whether the nonrecognition of gain applies to the stock that is sold, the holding period for the replacement stock begins to run on the date of purchase. In addition, only the first six months of the taxpayer’s holding period for the replacement stock will be taken into account for purposes of determining whether the active business requirement is met.<a href="#_ftn9" name="_ftnref9">⁹</a><br /> <br /> <hr /><br /> <br /> <strong>Planning Point:</strong> The taxpayer must make an election under IRC Section 1045 by the due date (including extensions) for filing the income tax return for the taxable year in which the qualified small business stock is sold.<a href="#_ftn10" name="_ftnref10">¹⁰</a> The election is made by (1) reporting the entire gain from the sale of qualified small business stock on Schedule D; (2) writing “IRC Section 1045 rollover” directly below the line on which the gain is reported; <em>and</em> (3) entering the amount of the gain deferred under IRC Section 1045 on the same line as (2), above, as a loss, in accordance with the instructions for Schedule D.<a href="#_ftn11" name="_ftnref11">¹¹</a><br /> <br /> <hr /><br /> <br /> If a taxpayer has more than one sale of qualified small business stock in a taxable year that qualifies for the IRC Section 1045 election, the election can be made for any one or more of those sales. An IRC Section 1045 election is revocable only with the Commissioner’s consent.<a href="#_ftn12" name="_ftnref12">¹²</a><br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.  IRC § 1045(a).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.  IRC § 1045(a).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.  IRC § 1202.<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.  IRC § 1045(b)(5).<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a>.  Treas. Reg. §§ 1.1045-1(b)(1), 1.1045-1(g)(3)(i).<br /> <br /> <a href="#_ftnref6" name="_ftn6">6</a>.  General Explanation of Tax Legislation Enacted in 1998 (JCS-6-98), p. 167 (the 1998 Blue Book).<br /> <br /> <a href="#_ftnref7" name="_ftn7">7</a>.  Treas. Reg. § 1.1045-1. TD 9353, 2007-2 CB 721.<br /> <br /> <a href="#_ftnref8" name="_ftn8">8</a>.  IRC § 1045(b)(3).<br /> <br /> <a href="#_ftnref9" name="_ftn9">9</a>.  IRC §§ 1045(b)(4), 1223(15).<br /> <br /> <a href="#_ftnref10" name="_ftn10">10</a>.  Rev. Proc. 98-48, 1998-2 CB 367.<br /> <br /> <a href="#_ftnref11" name="_ftn11">11</a>.  Rev. Proc. 98-48, 1998-2 CB 367.<br /> <br /> <a href="#_ftnref12" name="_ftn12">12</a>.  Rev. Proc. 98-48, 1998-2 CB 367.<br /> <br /> </div>

<div class="Section1"><em>Editor’s Note:</em> The 2017 tax reform legislation limited the nonrecognition treatment provided under IRC Section 1031 to exchanges of real property that is not held primarily for sale.<a href="#_ftn1" name="_ftnref1">¹</a> This provision applies to exchanges occurring after December 31, 2017.</div><br /> <div class="Section1"><br /> <br /> If a transaction otherwise qualifying for nonrecognition treatment under IRC Section 1031 involves the receipt of money or non-like-kind property (“boot”) in addition to the like-kind property received in the exchange, any realized gain on the exchange must be recognized to the extent of the value of the boot received, and the carryover or transferred basis must be adjusted.<br /> <blockquote><em>Example:</em> Joanne owns a business that has three warehouses. A few years later, Joanne transfers one of the warehouses, which had an adjusted basis of $45,000 and a fair market value of $48,000, to Calin, in exchange for vacant land with a fair market value of $42,000, and $6,000 in cash.<br /> <br /> Joanne’s realized gain is $3,000 ($42,000 truck and $6,000 cash received, or $48,000 minus $45,000 basis). Because the cash is boot, Joanne must recognize gain to the extent of the boot. Joanne’s overall gain is $3,000 and the boot is $6,000. As a result, Joanne must recognize the entire $3,000 gain.<br /> <br /> Joanne’s carryover basis is increased by the amount of any gain recognized and decreased by the amount of any money received.<a href="#_ftn2" name="_ftnref2">²</a> As a result, in this case, Joanne’s basis of $45,000 is increased to $48,000 as a result of the $3,000 gain. That $48,000 basis is decreased by the amount of money received, $6,000, to $42,000. As a result, Joanne’s basis in the replacement property is $42,000. Therefore, if Joanne were to sell the land for $42,000 (its fair market value), she would have no gain or loss.<a href="#_ftn3" name="_ftnref3">³</a></blockquote><br /> Similarly, if the person who receives the like-kind property assumes a liability that secures the property, the transferor is treated as having received money to the extent of the assumed liability. If the property received in the exchange is also secured by a liability, then the boot deemed received is only the excess, if any, of the liability transferred with the original property over the liability assumed on the replacement property.<a href="#_ftn4" name="_ftnref4">⁴</a><br /> <blockquote><em>Example:</em> Al owns a warehouse with a basis of $160,000, a value of $200,000, and subject to a mortgage of $150,000. He transfers the warehouse to Asher in exchange for an office building with a value of $175,000, which is subject to a $125,000 mortgage.<br /> <br /> From a strictly economic perspective, Al’s amount realized is the fair market value of the office building, $175,000, plus a net assumption by Asher of $25,000 of liability (Al’s property is subject to $150,000 mortgage and Asher’s property is subject to a $125,000 mortgage.) Thus, Al’s realized gain is $40,000 ($200,000 minus $160,000 basis).<br /> <br /> Although the transaction is a like-kind exchange, Al must recognize the realized gain to the extent of the boot received. In this case, as a result of the transfer of mortgages, Al is deemed to have received $25,000 in cash ($150,000 minus $125,000).<br /> <br /> Of the $40,000 realized gain, Al must recognize $25,000. The balance of the gain, $15,000, is not recognized.<br /> <br /> Al’s carryover basis is adjusted as follows: The $160,000 basis is increased to $185,000 by the $25,000 of recognized gain. It is then decreased by $25,000, the amount of money Al is deemed to receive. As a result, Al’s basis in the office building is $160,000.<br /> <br /> Therefore, if Al were to sell the office building for $175,000 (its fair market value), he would recognize $15,000 of gain. To recap, Al realized $40,000 of gain with respect to the exchange. Of that amount, $25,000 was immediately recognized and $15,000 was deferred.</blockquote><br /> <table border="1" align="center"><br /> <tbody><br /> <tr><br /> <td style="text-align: center;" colspan="2" valign="top" width="373"><strong>Realized Gain Computation</strong></td><br /> </tr><br /> <tr><br /> <td colspan="2" valign="top" width="373">Nonrecognized Portion of Gain</td><br /> </tr><br /> <tr><br /> <td valign="top" width="265">Amount Realized</td><br /> <td style="text-align: center;" valign="top" width="109">$200,000</td><br /> </tr><br /> <tr><br /> <td valign="top" width="265">Basis</td><br /> <td style="text-align: center;" valign="top" width="109">$160,000</td><br /> </tr><br /> <tr><br /> <td valign="top" width="265">Total Gain Realized</td><br /> <td style="text-align: center;" valign="top" width="109">$40,000</td><br /> </tr><br /> <tr><br /> <td valign="top" width="265">Recognized Gain (Mortgage Boot)</td><br /> <td style="text-align: center;" valign="top" width="109">$25,000</td><br /> </tr><br /> <tr><br /> <td valign="top" width="265">Deferred Gain</td><br /> <td style="text-align: center;" valign="top" width="109">$15,000</td><br /> </tr><br /> <tr><br /> <td colspan="2" valign="top" width="373">Recognized Portion Of Gain (Boot)</td><br /> </tr><br /> <tr><br /> <td valign="top" width="265">Mortgage Given Up</td><br /> <td style="text-align: center;" valign="top" width="109">$150,000</td><br /> </tr><br /> <tr><br /> <td valign="top" width="265">Mortgage Taken On</td><br /> <td style="text-align: center;" valign="top" width="109">($125,000)</td><br /> </tr><br /> <tr><br /> <td valign="top" width="265">Boot</td><br /> <td style="text-align: center;" valign="top" width="109">$25,000</td><br /> </tr><br /> <tr><br /> <td colspan="2" valign="top" width="373">Basis of Building Received</td><br /> </tr><br /> <tr><br /> <td valign="top" width="265">Carryover Basis From Property Given Up</td><br /> <td style="text-align: center;" valign="top" width="109">$160,000</td><br /> </tr><br /> <tr><br /> <td valign="top" width="265">Plus: Gain Recognized</td><br /> <td style="text-align: center;" valign="top" width="109">$25,000</td><br /> </tr><br /> <tr><br /> <td valign="top" width="265">Less: Cash Boot Deemed Received</td><br /> <td style="text-align: center;" valign="top" width="109">($25,000)</td><br /> </tr><br /> <tr><br /> <td valign="top" width="265">Basis of Building Received</td><br /> <td style="text-align: center;" valign="top" width="109">$160,000</td><br /> </tr><br /> </tbody><br /> </table><br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.  IRC § 1031(a)(1).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.  IRC § 1031(d).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.  Treas. Reg. § 1.1031(d)-1(b).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.  Treas. Reg. § 1.103(b)-1(c).<br /> <br /> </div>