Rule Atlas
IRC § 1031: Section 1031: Deferring Gains with Like-Kind Exchanges
Under IRC § 1031 (IRS / Treasury Circular 230), section 1031: Deferring Gains with Like-Kind Exchanges establishes the authoritative rules tested on the IRS Enrolled Agent (EA). Master the rules for tax-deferred exchanges of business or investment real property, including timelines, boot, basis calculations, and the critical role of a qualified intermediary. VoraPrep verifies every threshold, worked table, and practice question below against the current IRS Enrolled Agent (EA) blueprint.
Current Statutory Thresholds & Limits in Effect
Triggers deposit by the next banking day AND converts monthly depositors to semiweekly status for the remainder of the current and entire next calendar year.
The Strict Exchange Timelines: 45 and 180 Days
| Rule & Deadline | Details & Identification Rules |
|---|---|
| Identification Period: 45 Days | The taxpayer must identify potential replacement properties in writing to the Qualified Intermediary within 45 calendar days of closing on the sale of the relinquished property. The identification must be specific and unambiguous. One of these rules must be met: <br> • 3-Property Rule: Identify up to three properties of any value. <br> • 200% Rule: Identify any number of properties, as long as their total Fair Market Value (FMV) does not exceed 200% of the relinquished property's FMV. <br> • 95% Rule: Identify any number of properties, but you must acquire at least 95% of the total FMV of all properties identified. |
| Exchange Period: 180 Days | The taxpayer must receive the replacement property within 180 calendar days of the sale of the relinquished property, OR by the due date (including extensions) of the tax return for the year of the sale, whichever is earlier. |
Maria, a sole proprietor, exchanges a commercial building she used in her business for another commercial building. The building she gave up had an adjusted basis of $300,000 and a fair market value (FMV) of $500,000. In the exchange, she received a new building with an FMV of $450,000 and $50,000 in cash. What is the amount of gain Maria must recognize on this exchange for the current tax year?
Worked Example: Exchange with Boot and Basis Calculation
Scenario: Anya owns an office building she uses in her business. She exchanges it for a smaller office building and some cash. Consider these facts for the exchange under IRC §1031:
- | Item | Relinquished Property (Old) | Replacement Property (New) | | :--- | :--- | :--- | | Fair Market Value (FMV) | $1,000,000 | $900,000 | | Adjusted Basis | $400,000 | N/A | | Mortgage | $300,000 (paid off) | $250,000 (assumed) |
- Anya also receives $50,000 in cash to equalize the exchange.
- Let's calculate her recognized gain and the basis of her new property.
- Step 1: Calculate Realized Gain This is the total economic gain on the transaction. Amount Realized: $900,000 (New Building FMV) + $50,000 (Cash) + $300,000 (Old Mortgage Relief) = $1,250,000 Basis Given Up: $400,000 (Old Building Basis) + $250,000 (New Mortgage Assumed) = $650,000 Realized Gain: $1,250,000 - $650,000 = $600,000
Common IRS Enrolled Agent (EA) Distractors on IRC § 1031
- 1Every Section 1031 question on the SEE follows the same underlying structure. Use this 5-step decision framework to solve them correctly.
- 2To remember the strict deadlines, think of it as a two-step countdown:
- 3This simple phrase is a memory aid that reinforces the two non-negotiable deadlines that start ticking the moment the relinquished property is sold.
- 4Verify effective dates and current-year inflation adjustments before computing dollar caps or penalty rates.
Frequently Asked Questions: IRC § 1031
What is the core rule under IRC § 1031 (Section 1031: Deferring Gains with Like-Kind Exchanges)?
Under IRC § 1031 (IRS / Treasury Circular 230), section 1031: Deferring Gains with Like-Kind Exchanges establishes the authoritative rules tested on the IRS Enrolled Agent (EA). Master the rules for tax-deferred exchanges of business or investment real property, including timelines, boot, basis calculations, and the critical role of a qualified intermediary. VoraPrep verifies every threshold, worked table, and practice question below against the current IRS Enrolled Agent (EA) blueprint.
How is IRC § 1031 tested on the IRS Enrolled Agent (EA)?
Every Section 1031 question on the SEE follows the same underlying structure. Use this 5-step decision framework to solve them correctly. To remember the strict deadlines, think of it as a two-step countdown:
Where can I practice IRS Enrolled Agent (EA) questions on Section 1031: Deferring Gains with Like-Kind Exchanges?
Test yourself instantly with the free playable IRS Enrolled Agent (EA) question on this page, or launch VoraPrep's full IRS Enrolled Agent (EA) adaptive question bank, interactive lessons, and 1:1 exam simulator at voraprep.com/ea-prep.