Like-kind exchange is a transaction that allows for the disposal of an asset (used in a trade or business or held for the production of income) and the acquisition of another replacement asset (of the same class) without generating a current tax liability from the sale of the first asset.
To achieve full tax deferral:
• Reinvest the entire net equity (net proceeds) in one or more replacement properties.
• Acquire one or more replacement properties with the same or a greater amount of debt.
Two main requirements must be met for a delayed exchange:
- The replacement like-kind property (or properties; multiple properties may be identified) to be received must be identified (clearly and unambiguously) within 45 days of the date the old property was given up.
- Secondly, the replacement like-kind property must be delivered within 180 days of that same date (or, if earlier, the due date of the return). More than one replacement property may be identified.
Qualified intermediaries may be used to facilitate such exchanges; however, at no time may a party have constructive receipt of any funds in escrow (this is a sale).
The presence of “boot” (non-like kind property) in a transaction may cause the recognition of gain or loss. This is true, for example, when monetary boot is received or non-monetary boot given.
I created this blog to help understand certain basic aspects of U.S. tax law. Of course, each situation is unique and nothing that is on this site will ever replace the expert advice of a tax professional.
Please do not hesitate to contact me should you have any question