For the exclusive use of Godfrey Mbonu (comfmed@gmail.

com)
Unauthorized reproduction or distribution prohibited.

Contrary to this rule, any inherited property received by the beneficiary of an estate always has a
holding period of more than 12 months (considered long term).

Gifted property will have a holding period determined by whether the taxpayer is using the gain
basis, or the
and the holding period to the donee will begin on the date when the donor purchased the gift. If the
donee sells the gift at a loss, they will use the loss ba

s basis instead
of the fair market value at date of gift, the holding period begins on the date the donor purchased the
item to be gifted.

Hint: Think about what is most beneficial for the IRS, if sold at a loss they want to limit you because
that is a tax benefit. On the other hand, if sold at a gain they want the maximum money because
that is a tax liability. Therefore, for tax benefits (losses) use the lower of basis or FMV and for tax

REG 3-Q7 through REG 3-Q12

2. Taxable and nontaxable dispositions

Analyze asset sale and exchange transactions to determine whether they are taxable or nontaxable.

The basis for the newly acquired replacement property is calculated as follows:

Starting point Basis of property given up

Plus Gain recognized
Plus Boot basis paid
Reduce Loss recognized
Reduce Boot fair market value received

1) Like-kind Exchange

Calculate the realized gain, recognized gain and deferred gain on like-kind property
exchange transactions for federal income tax purposes.

A like-kind exchange is an exchange transaction where business use or investment property

is given up in exchange for similar type of property. Similar type of property would be real
property for real property and personal property for personal property.

Also, the property given up must match. If U.S. property, must be exchanged for U.S.
property. Similarly, if the property given up is foreign, then the property received must be
foreign property as well.

As long as the above requirements are met, business use property can be exchanged for
investment property or vice versa.

Specifically, the like kind exchange rules will not apply to:
i. Inventory
ii. Investments in stocks, bonds, or notes
iii. Interests in a partnership
iv. Property held for personal use

REG 3.6
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