Question

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

1) 1 year
2) 2 years
3) 3 years
4) 4 years

Answer 1

For related taxpayers engaging in a like-kind exchange, the properties must be held for two years after the exchange to prevent recognition of gain on a subsequent disposition of the property.

Step-by-step explanation:

When related taxpayers engage in a like-kind exchange, the Internal Revenue Code (IRC) requires a certain period during which the exchanged property must be held to avoid the recognition of gain or loss on the exchange. The properties must be retained for two years after the exchange. This holding period requirement is to ensure that the exchange is consistent with the purpose of allowing non-recognition of gain or loss only in cases of genuine like-kind exchanges and not for tax-avoidance purposes.