CPA TCP Property transactions: practice questions with answers

Question 1

Which of the following exchanges completed in 2026 qualifies for like-kind treatment under §1031?

1. A A plumbing contractor trades three of its delivery trucks for three newer trucks of the same model.
2. B An investor trades a US rental condominium for a rental villa in Portugal held for investment.
3. C A home builder trades residential lots held for sale to customers for a parcel it will subdivide and sell.
4. D An investor trades an apartment building held for rent for vacant farmland that she will hold for investment.

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Answer: D. Since January 1, 2018, §1031 applies only to real property held for productive use in a trade or business or for investment, exchanged for real property to be held either way. Within that class, the grade or quality does not matter: an apartment building and raw land are like-kind.

Exclusions: personal property (vehicles, equipment), real property held primarily for sale, and an exchange of US real property for foreign real property.

Source: IRC §1031(a) and §1031(h).

Question 2

On November 20, 2026, Theodora Escobedo transferred a parcel of investment land to a qualified intermediary to begin a deferred §1031 exchange. She is a calendar-year individual and will not extend her 2026 return, which is due April 15, 2027. What are the last day to identify replacement property and the last day to receive it?

1. A Identify by January 4, 2027; receive by May 19, 2027
2. B Identify by December 31, 2026; receive by April 15, 2027
3. C Identify by January 4, 2027; receive by October 15, 2027
4. D Identify by January 4, 2027; receive by April 15, 2027

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Answer: D. In a deferred exchange (§1031(a)(3)):
- Replacement property must be identified within 45 days of transferring the relinquished property: November 20, 2026 + 45 days = January 4, 2027.
- It must be received by the earlier of (a) 180 days after the transfer, May 19, 2027, or (b) the due date, including extensions, of the return for the year of the transfer. Without an extension the 2026 return is due April 15, 2027, which is earlier.

So the exchange must close by April 15, 2027. Extending the 2026 return would let her use the full 180 days. Source: IRC §1031(a)(3); Reg. §1.1031(k)-1(b).

Question 3

In 2026 Albertine Strzelecki, a sole proprietor, sold (1) land used for 4 years as her business's customer parking lot, at a gain; (2) a boat held 3 years for family recreation, at a loss; and (3) land held 2 years as an investment, at a gain. How are the three results characterized?

1. A (1) §1231 gain; (2) nondeductible loss; (3) long-term capital gain
2. B (1) long-term capital gain; (2) capital loss; (3) long-term capital gain
3. C (1) §1231 gain; (2) §1231 loss; (3) §1231 gain
4. D (1) ordinary income; (2) nondeductible loss; (3) §1231 gain

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Answer: A. Character depends on how the asset was used:
- Business land held more than 1 year: excluded from capital assets by §1221(a)(2) and treated as §1231 property (land is not depreciable, so there is no recapture).
- Personal-use boat: a capital asset, but a loss on personal-use property is not deductible (§165(c)); a gain would be capital gain.
- Investment land held more than 1 year: a capital asset, so long-term capital gain.

Source: IRC §1221, §1231 and §165(c).

Question 4

Sorcha Cuthbertson, a sole proprietor, bought equipment in 2022 for $150,000, expensed $60,000 under §179 and deducted $52,000 of MACRS depreciation through the date of sale. In 2026 she sold it for $95,000. How is the gain characterized?

1. A §1245 ordinary income $52,000; §1231 gain $5,000
2. B §1245 ordinary income $0; §1231 gain $57,000
3. C §1245 ordinary income $112,000; §1231 gain $0
4. D §1245 ordinary income $57,000; §1231 gain $0

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Answer: D. Adjusted basis = $150,000 - $60,000 - $52,000 = $38,000
Gain = $95,000 - $38,000 = $57,000
Depreciation subject to recapture = $60,000 + $52,000 = $112,000
§1245 ordinary income = lesser of $57,000 or $112,000 = $57,000; no §1231 gain remains.

Source: IRC §1245(a)(2)(C) (§179 treated as depreciation).

Question 5

Matthias and Anselma Glanville, who file jointly, bought shares directly from Loxley Robotics Inc. when it was formed. The shares qualify as §1244 stock. In 2026 the shares became worthless, giving a $140,000 loss. They had no capital gains in 2026. What are the ordinary loss and the capital loss from the shares?

1. A Ordinary loss $100,000; capital loss $40,000
2. B Ordinary loss $50,000; capital loss $90,000
3. C Ordinary loss $140,000; capital loss $0
4. D Ordinary loss $0; capital loss $140,000

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Answer: A. §1244 allows an ordinary loss on qualifying small business stock held by the original individual purchaser, up to $50,000 a year, or $100,000 on a joint return.

Ordinary loss = lesser of $140,000 or $100,000 = $100,000
Capital loss = $140,000 - $100,000 = $40,000 (long- or short-term by holding period). With no capital gains, $3,000 of it is deductible in 2026 and the rest carries forward.

Source: IRC §1244(a)-(b) and §1211(b).

Question 6

The stock of Pilkington Supply Inc. is owned as follows: Ignace Yarborough 20%; Ignace's father 15%; Yarborough Ventures LP 30%; Ignace's wife's brother 10%; unrelated investors 25%. Ignace is a 40% partner in Yarborough Ventures LP; the other partners are unrelated to him and own no Pilkington stock directly. What percentage of Pilkington does Ignace own directly and constructively under §267?

1. A 35%
2. B 47%
3. C 57%
4. D 65%

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Answer: B. Constructive ownership under §267(c):
- Direct: 20%
- Family (§267(c)(2), (4)): his father's 15% is attributed to him.
- Entity (§267(c)(1)): stock owned by a partnership is owned proportionately by its partners: 40% x 30% = 12%.
- His brother-in-law is not family, so his 10% is not attributed.

Total = 20 + 15 + 12 = 47%. Because this does not exceed 50%, Ignace and Pilkington are not related persons, and a loss on a sale between them would not be disallowed by §267. Source: IRC §267(b)(2) and §267(c).