The Waterbury Democrat. [volume] (Waterbury, Conn.) 1917-1946, 1944-03-01
TRADES AND EXCHANGES
part q

While certain trades or exchanges
of property are considered as not
giving rise to gain, and are conse-
quently nontaxable, such transac.
tons are strictly limited in charac-
ter. The first limitation is that the
property exchanged must be solely
for property Of like kind"
The words like kind" have refer
ence to the nature or character Of
the property, and not to its grade,
quality, or use. Thus, an exchange
of an old truck for new truck, an
old passenger car for new passen-
ger car, would be exchanges of like
kind" Likewise, trades of a farm
for city property. or of unimproved
real estate for improved real estate,
or of rental house for a store
building, although dissimilar in serv-
ices or use, are still classified as ex-
changes of like kind.
A second limitation on nontaxable
exchanges is that the property ex.
changed must have been held fol
productive use in trade or business
or for investment" and the exchange
must be made for property to be 50
held. This limitation excludes vari.
Gus types of transactions, especially
trades of property used or to be used
for personal purposes. An instance
is an exchange involving residential
property. Since a residence Is not
considered as held for use in trade
or business or for investment, q
trade of a residence for other prop
erty, or q trade Of other property
for residence intended to be oc-
cupied by the taxpayer would consti-
tute in effect a sale of the property
disposed Of, and gain realized OF.
the exchange would be reportable.
1t should be noted. also in this
connection, that in the case of
residence exchanged for other prop.
erty any gain realized would be tax
able. under the capital gains pro
visions, for normal tax and SurtaH
purposes, but no loss would he al
lowable, since losses are not allowed
to be taken on personal residence
property disposed of. If, however. a
business property were exchanged
for residence, the resultant gair
or loss would be reportable.
The third limitation on nontaX-
able exchanges is that the exchange
must be even-that is, no boot" in
volved. If boot is taken, then 8
gain arises. the amount Of which
up to the amount of the boot. would
be taxable. The amount Of gain
beyond the amount of the boo
would he ncntaXable. If boot Is
Given, however, no loss can be taken
for the amount of boot given. since
this is regarded simply as additional
investment in property Of the kline
exchanged.
The fourth limitation on nontaX-
able exchanges excludes transactions
in stocks ard bonds and other Secur'
tiles, as we'll as exchanges Of prop
erty hello as stock in trade or pri-
marily for sale. However in the
case of investment Sscuri & held
an exchange may be nontaTable l.
the securities exchanged are of the
same corporation and of the SAINT
degree of equity common stock fol
common stock, preferred stock for
preferred stock. etc.. Also, in the
case of congratulations, an exchange
of securities is nontaxable If the
exchange is made pursuant to a plar
of reorganization, and stock or Sc
curities in a corporation a party tc
the reorganization are exchanged
solely for stock or securities in such
corporation or another corporation
a party to the reorganization.