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1031(a)(1) provides for nonrecognition of gain or loss on the
exchange of certain types of like-kind property, including real
property, held for productive use in trade or business or for
investment.4 Section 1031(b) in effect provides that if the
property received in an exchange otherwise qualifying for
nonrecognition of gain under section 1031(a) includes money or
other property (“boot”), then any gain to the recipient shall be
recognized, but not in excess of the boot.
Was McDonald Street Sold or Exchanged?
The question posed by respondent’s determination is whether
the subject transactions were a taxable sale to WLC of the
McDonald Street property, as respondent determined, or instead
were a taxable sale of the unimproved Lawrence Drive property to
WLC, followed 3 months later by petitioner’s transfer of the
McDonald Street property to WLC in a like-kind exchange for WLC’s
4 Clearly, the Lawrence Drive property, in both its
unimproved and improved states, and the McDonald street property
were like-kind properties within the meaning of sec. 1031(a).
Sec. 1.1031(a)-1(b), Income Tax Regs., states:
Definition of “like kind.” As used in section
1031(a), the words “like kind” have reference to the
nature or character of property and not to its grade or
quality. * * * The fact that any real estate involved
is improved or unimproved is not material, for that
fact relates only to the grade or quality of the
property and not to its kind or class. * * *
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