Question

The sale of old property and the purchase of new property, even though like kind, is generally

a. prohibited by the tax code.
b. subject to higher tax rates.
c. limited to personal residences.
d. subject to specific time constraints.

Answer 1

Option (d), The sale and purchase of like-kind property is subject to specific time constraints under a 1031 exchange which allows the deferral of capital gains tax.

Step-by-step explanation:

The sale of old property and the purchase of new property, while being of like kind, falls under specific regulations in the tax code known as a like-kind exchange or a 1031 exchange. This type of transaction is subject to specific time constraints.

The Internal Revenue Code requires that the replacement property must be identified within 45 days and the exchange completed within 180 days after the sale of the exchanged property. These like-kind exchanges are designed to defer the tax due on capital gains, as long as the new property is also used for business or investment purposes and not as a personal residence.

The correct answer to the question is: d. subject to specific time constraints.