Question

In a nontaxable exchange, the recognition of gain or loss is postponed (deferred) until the property received in the nontaxable exchange is subsequently disposed of in a taxable transaction. a) True

b) False

Answer 1

A nontaxable exchange indeed allows deferral of gain or loss recognition until the exchanged property is sold in a taxable transaction, commonly seen in real estate 1031 exchanges.

Step-by-step explanation:

In response to the question regarding a nontaxable exchange: it is indeed true that the recognition of gain or loss is postponed (deferred) until the property received in the nontaxable exchange is subsequently disposed of in a taxable transaction. In the context of tax law, a nontaxable exchange allows taxpayers to defer the recognition of gains or losses on certain qualified exchanges of property. This can occur through mechanisms such as a 1031 exchange, where real estate is exchanged for like-kind property.

The statement is true. In a nontaxable exchange, the recognition of gain or loss is indeed postponed until the property received in the nontaxable exchange is subsequently disposed of in a taxable transaction. This means that the taxpayer does not have to immediately recognize any gain or loss at the time of the exchange.