Chapter 28: Nontaxable Exchanges and Involuntary Conversions

This chapter covers property transactions where gain may be deferred instead of recognized immediately. These rules are highly testable because the outcome depends on satisfying specific structural requirements and then carrying the deferred consequence into replacement-property basis.

In This Chapter

• Like-Kind Exchanges (Section 1031): Requirements and Limitations explains when exchange treatment is available and when it is not.
• Involuntary Conversions (Section 1033): Calculating Deferred Gains covers the special rules for casualty, condemnation, and replacement situations.
• Basis of Replacement Property explains how deferred gain affects the new asset’s basis.
• Planning Implications of Deferred Gains connects the technical rules to transaction structuring decisions.

How to Use This Chapter

• Read this chapter when you understand realized gain but not when it becomes recognized.
• Focus on qualification requirements first, then on deferred gain and replacement basis.
• Revisit these sections when REG questions combine boot, basis, and deferral in a single transaction.

In this section

• Like-Kind Exchanges (Section 1031): Requirements and Limitations
  Learn how Section 1031 exchanges enable tax deferral through like-kind property replacement, including timelines, qualified intermediaries, partial exchanges with boot, and key compliance strategies.
• Involuntary Conversions (Section 1033): Calculating Deferred Gains
  Explore Section 1033 involuntary conversions—covering condemnation, casualty, and theft scenarios—and learn how to calculate and defer gains by properly applying replacement rules.
• Basis of Replacement Property
  Learn how newly acquired property’s basis is adjusted for deferred or partially recognized gains under Sections 1031 and 1033, complete with practical examples, diagrams, and key CPA Exam insights.
• Planning Implications of Deferred Gains
  Learn how deferral can shift tax burdens and plan for future dispositions in Section 1031 exchanges, involuntary conversions, and more.