In a §1031 exchange, a person is most likely to be taxed for a gain when:
Correct Answer
C) trading down.
Section 1031 defers gain only to the extent the exchanger reinvests everything, and gain is recognized up to the boot received - cash or net relief from debt. Trading down means taking replacement property worth less than the property given up, or carrying less debt than was paid off, which leaves that difference in the exchanger's hands as boot and triggers recognized gain. Paying cash into the exchange is the opposite situation and creates no gain for the payer, and swapping apartments for commercial property is still like-kind because real property held for investment or business use qualifies without regard to its type.
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Related Concepts
Constructive notice is the legal presumption that a person has knowledge of information that is available through public records or visible inspection of the property, regardless of whether they actually knew about it.
A deed is a written legal document that conveys (transfers) ownership of real property from one party to another. It must be delivered to and accepted by the grantee to be effective.
For a deed to be valid, it must contain several essential elements including a competent grantor, identifiable grantee, consideration, legal description, granting clause, signature of the grantor, and delivery and acceptance.
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