IRS Pronouncements
1. Rev. Rul. 68-363, 1968-2 CB 336 -- IRC Sec. 1031
- Based upon the ruling, it appears as though the main question was whether or not the location of the property transferred affects the applicability of Section 1031, which addresses the nonrecognition of a gain. For the particular taxpayer discussed in this ruling, he had exchanged a ranch in the United States for a Ranch in a foreign country and received $250,000 in cash. The taxpayer originally realized a gain of $300,000 on this exchange. Upon examination, it was determined that the location of the property should not affect the applicability of the section 1031. Having said this, due to the fact that the taxpayer did receive some cash in the exchange the amount of cash …show more content…
First three examples are provided: one where the basis for the property given up is less than the property received (plus cash is received, further adding to the gain incurred), one where the basis of the asset given up was greater than the property received (but with the cash included in the deal, the taxpayer incurs a gain), and finally a situation where the basis in the property given is less than the property received (no cash involved). In addition, each of these scenarios involves a $2,000 commission to the real estate broker. This ruling explains that in the first situation a gain will be realized in the amount of the cash received (less the amount used to pay brokerage fees). In the second situation a loss is present, resulting in no recognition in the current year, and finally in the third situation no gain is recognized. The Ruling explains that there is not a realized gain in the third example because the rules to determine the amount of a realized gain are: lesser of realized gain or net cash received. In this particular situation, no cash was exchanged, resulting in the realized gain being zero. Then when examining the basis of the new property, the basis of the land given less the gain received is determined, the amount of the gain recognized and the commissions paid are added to the value in order to calculate the new basis of the property received (Revenue Rulings ,
1. Rev. Rul. 68-363, 1968-2 CB 336 -- IRC Sec. 1031
- Based upon the ruling, it appears as though the main question was whether or not the location of the property transferred affects the applicability of Section 1031, which addresses the nonrecognition of a gain. For the particular taxpayer discussed in this ruling, he had exchanged a ranch in the United States for a Ranch in a foreign country and received $250,000 in cash. The taxpayer originally realized a gain of $300,000 on this exchange. Upon examination, it was determined that the location of the property should not affect the applicability of the section 1031. Having said this, due to the fact that the taxpayer did receive some cash in the exchange the amount of cash …show more content…
First three examples are provided: one where the basis for the property given up is less than the property received (plus cash is received, further adding to the gain incurred), one where the basis of the asset given up was greater than the property received (but with the cash included in the deal, the taxpayer incurs a gain), and finally a situation where the basis in the property given is less than the property received (no cash involved). In addition, each of these scenarios involves a $2,000 commission to the real estate broker. This ruling explains that in the first situation a gain will be realized in the amount of the cash received (less the amount used to pay brokerage fees). In the second situation a loss is present, resulting in no recognition in the current year, and finally in the third situation no gain is recognized. The Ruling explains that there is not a realized gain in the third example because the rules to determine the amount of a realized gain are: lesser of realized gain or net cash received. In this particular situation, no cash was exchanged, resulting in the realized gain being zero. Then when examining the basis of the new property, the basis of the land given less the gain received is determined, the amount of the gain recognized and the commissions paid are added to the value in order to calculate the new basis of the property received (Revenue Rulings ,