Answer the following statements true (T) or false (F)

Question

1. If related taxpayers exchange property qualifying for a like-kind exchange, the properties must be retained for three years after the exchange to prevent recognition of gain resulting from the original exchange on a subsequent disposition of the property.
2. The holding period of like-kind property received in a nontaxable exchange begins on the day of the exchange.
3. The holding period for boot property received begins on the day after the date of the exchange.
4. The involuntary conversion provisions which allow deferral of gain are mandatory.
5. In order to fully defer the gain realized on the involuntary conversion of property, the taxpayer must acquire qualifying replacement property costing at least as much as the cost of the original property.

Answer 1

1. FALSE
The property must be retained for two years.
2. FALSE
The holding period includes the holding period of the like-kind property if that property is a capital asset or 1231 property.
3. TRUE
While the like-kind property may have a carryover holding period, boot received starts a new holding period.
4. FALSE
If a gain is realized on an involuntary conversion, deferral is elective.
5. FALSE
To defer the full gain, the full proceeds received must be reinvested in qualifying replacement property.