Foreign Investment in Real Property Tax Act - Gain Recognition

Gain Recognition

Taxpayers generally must recognize gain upon disposition of property. Where the proceeds are received in more than one year, the gain is recognized proportionately over the years received.

Taxpayers exchanging property may not be required to recognize gain on certain transactions. Among these are like kind exchanges, corporate formations, contributions to or distributions from partnerships, certain corporate reorganizations, and certain other transactions. FIRPTA provides that such nonrecognition provisions generally do not apply, and gain must be recognized. Two exceptions do apply. First, gain is not recognized if the property received in the exchange is a USRPI which, if disposed of immediately after the exchange, would be subject to FIRPTA. Second, the IRS may provide other exceptions in regulations. Temporary regulations providing very limited exceptions have expired. Regulations provide limited exceptions treating certain partnership interests as USRPIs, and thus nonrecognition.