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IRC 1031 Property Exchange - Research Paper Example

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First one needs to establish whether the transaction qualifies to be a like-kind event. Second, one should find out whether it met the 1031…
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IRC 1031 Property Exchange
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Download file to see previous pages According to the Federal Income Tax Law, capital gains on the disposal or the realization of an asset is included in the tax base when they accrue and taxed2. However, according to the IRC Section 1031, no gain or loss will be recognized on an exchange of a property that has been held for productive use in business or trade or for investment, if that property has been exchanged solely for another property of like-kind for the purpose of holding it either for productive use in business, trade or investment3. Mrs Helen, for you to be exempted from paying tax on the capital gains, these conditions must be met: the gross acquisition price of the replacement like-kind real property should be equal to or greater than the gross net sales price of the relinquished property; and the equity received from the realization of the relinquished real estate property should be used to acquire the replacement like-kind property4.
However, your case was special as it involved co-op shares. The treatment of co-op shares raises some confusion as whether it is a real property and qualifies for an exchange. In Private Letter Ruling 200631012, in 2006, the Internal Revenue Service concluded that shares in a cooperative apartment situated in New York constitute real property for the purposes of like-kind exchange rules. In making this ruling, the Internal Revenue Service argued that the New York law determined whether the interest in cooperative apartment amounted to a real property and several New York statutes were already regarding the interest in cooperative apartment in the same manner as interest in real property5.
In their rulings, New York courts argue that interests in cooperatives are intangible personal property. In a case involving Danforth v. McGoldrick, the Supreme Court held that whenever an individual acquires stocks in cooperative, then that person purchases shares in a corporation giving rise to contractual rights to occupancy. In another case, of re Miller’s ...Download file to see next pagesRead More
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