Question

If there is a like-kind exchange of property between related parties, how long do they have to wait to dispose of the property received in order to avoid having to recognize any gain on the exchange?

A) 6 months

B) 1 year

C) 2 years

D) no waiting period

Please explain

Answer 1

Solution:-

If there is a like-kind exchange of property between related parties, how long do they have to wait to dispose of the property received in order to avoid having to recognize any gain on the exchange:-

C) 2 years

Explanation:-

The Related Party Swap rules are found in Code Sec. 1031(f)(1). If a taxpayer swaps property with a related party and defers the recognition of gain under Code Sec. 1031, no gain is recognized if each related party holds its replacement property for two years (the “Two-Year Rule”). The Two-Year Rule applies only when the exchange is a Related Party Swap with no third-party buyer of the relinquished property or third-party seller of the replacement property. Gain from a Related Party Swap will be recognized if the taxpayer disposes of the replacement property or the related party disposes of the taxpayer’s relinquished property within two years after the date of the last transfer that is part of the swap transaction.