Question

If related taxpayers exchange property qualifying for a like-kind exchange, the properties must be retained for three years after the exchange to prevent recognition of gain resulting from the original exchange on a subsequent disposition of the property.

1) True
2) False

Answer 1

The claim is false; there is no specific three-year holding period requirement for like-kind exchanges according to IRS regulations, but holding the property for at least one to two years can serve as a general guideline.

Step-by-step explanation:

The statement that related taxpayers must retain property for three years after a like-kind exchange to prevent recognition of gain is false. According to the Internal Revenue Service (IRS) regulations, there is no specific holding period required to qualify for a like-kind exchange under Section 1031 of the Internal Revenue Code. However, the IRS does look at the intent behind the exchange, and properties involved in a like-kind exchange should be held for productive use in a trade, business, or for investment. To avoid any presumption of an improper motive, a general rule of thumb is to hold the exchanged properties for at least one to two years, but this is not a legal requirement. Taxpayers should consult with a tax professional for advice on their specific situation.