Qualified Replacement Property

Qualified Replacement Property

A property of the same type that is not necessarily the same as another property. Under U.S. tax law, a qualified replacement property is not subject to capital gains taxes. For example, if a person trades a rusty 1993 Chevrolet Cavalier for a mint-condition 1968 Chevrolet Corvette, the Corvette is a qualified replacement property. The person will not be liable for capital gains taxes on the extra value of the Corvette because both properties are automobiles. See also: Like-Kind Exchange.
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8 million gain until she sells her qualified replacement property.
A successful search for a qualified replacement property necessitates careful considerations beyond whether the received property is qualified as boot.
When the owner is ready to divest from the original company, the FLP sells the shares to the ESOP and reinvests the proceeds in qualified replacement property to take advantage of the Sec.
The deferred gain from the sale of employer stock to an ESOP generally must be recognized upon a subsequent sale or exchange of the qualified replacement property.
A district court recently found that a taxpayer was unable to defer the gain realized upon a stock sale when the taxpayer purchased qualified replacement property ("QRP"), financing that purchase with a loan, but then transferred the loan to a third party (along with the QRP as collateral) in exchange for a cash loan from the third party.
To take advantage of this option, the proceeds must be reinvested in qualified replacement property (stocks or bonds of domestic operating companies), creating an opportunity for financial professionals.
Specifically, gain is not recognized on the sale of qualified securities to an ESOP if the proceeds from the sale are reinvested in qualified replacement property (Sec.
68) If a sale to an ESOP is made, capital gain is recognized only if the qualified replacement property is later sold, and the gain recognized is measured by the difference between the sale price of the qualified replacement property and the owner's original cost basis in his corporate stock.
If the property owner reinvests the gain realized from the condemnation (within the time required in [section] 1033) by purchasing other property "similar or related in service or use to the [condemned] property," then the gain does not need to be recognized, provided that it is fully absorbed by the purchase price of the qualified replacement property.
If he holds the qualified replacement property at the time of his death, income tax is never paid on the proceeds of such sale because of the tax rules for stepped-up basis for assets in an estate.
In placing these time limits on the acquisition of qualified replacement property, Congress was placing section 1031 on a consistent course with other nonrecognition provisions of the Code, e.
In other words, if the realized gain on receipt of $100 insurance proceeds is $30 and the actual or anticipated cost of qualified replacement property is only $80, the taxpayer should report a $20 gain.
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