Under the Like-Kind Exchange Rules, When Like-Kind Property Is Traded

question 55

Multiple Choice

Under the like-kind exchange rules, when like-kind property is traded for like-kind property, a loss on a trade-in is:

• A)recognized and treated as a capital loss.
• B)recognized and treated as an ordinary loss.
• C)not recognized and increases the basis of the replacement property.
• D)not recognized and decreases the basis of the replacement property.
• E)none of the above.

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Definitions:

Proportional

Relating to or denoting a relationship where a change in one quantity results in a corresponding proportional change in another quantity.

Federal Income Tax

A tax levied by the United States federal government on the annual earnings of individuals, corporations, trusts, and other legal entities.

Income-Tax Filers

Individuals or entities that submit a report of their income to a governmental body to assess tax liabilities.

Efficiency Losses

The reduction in economic welfare resulting from distortions in resource allocation or market behavior.