Final answer:
The statement that the presence of additional non-like-kind property in an exchange disqualifies the transaction as a like-kind exchange is false. The non-like-kind part, or 'boot,' results in taxable gain while the like-kind portion can still benefit from tax deferment.
Step-by-step explanation:
The statement is false. Under Section 1031 of the Internal Revenue Code, a like-kind exchange is a transaction where a taxpayer is allowed to exchange one like-kind property for another and defer the capital gains taxes that would normally be due upon sale. However, the presence of additional property, often referred to as boot, does not automatically disqualify the entire transaction from being treated as a like-kind exchange. Instead, the value of the boot is typically treated as taxable gain in the year of the exchange, while the like-kind portions of the exchange can still qualify for deferred tax treatment.
Thus, it is crucial to understand that a like-kind exchange can still occur even if boot is involved, provided the main elements of the properties exchanged are of like-kind nature. The taxpayer must report and potentially pay taxes on the fair market value of the boot received, but the remaining like-kind exchange continues to benefit from tax deferment under the appropriate conditions.
Examples of boot include cash, personal property, or debt relief that doesn't match the debt assumed on the new property. The essential point to remember is that while boot triggers a taxable event, it does not negate the possibility of a like-kind exchange for the other parts of the transaction.