| Wells Income Tax |
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Trades of Like-Kind Property
You may not have to pay tax on gain realized on the "like-kind" exchange of business or investment
property. By making a qualifying exchange, you can defer the gain. For tax-free gain treatment,
you must trade property held for business use or investment for like-kind business or investment
property. If the properties are not simultaneously exchanged, the time limit to complete the
exchange is generally 180 days. Gain is completely tax free only if you do not receive any "boot":
cash or other property.
Where gain on a qualifying exchange is deferred and not immediately taxed, it may be taxable in a
later year when you sell the property because your basis for the new property is generally the same
as the basis for the property you traded.
If you make a qualifying like-kind exchange with certain related parties, tax-free treatment may be
lost unless both of you keep the exchanged properties for at least two years.
The term like-kind refers to the nature or character of the property, that is, whether real estate is
traded for real estate. It does not refer to grade or quality, that is, whether the properties traded
are new or used, improved or unimproved. In the care of real estate, land may be traded for a
building, farm land for city lots, or a leasehold interest of 30 years or more for an outright ownership
in realty.
You may not have to pay tax on gain realized on the "like-kind" exchange of business or investment
property. By making a qualifying exchange, you can defer the gain. For tax-free gain treatment,
you must trade property held for business use or investment for like-kind business or investment
property. If the properties are not simultaneously exchanged, the time limit to complete the
exchange is generally 180 days. Gain is completely tax free only if you do not receive any "boot":
cash or other property.
Where gain on a qualifying exchange is deferred and not immediately taxed, it may be taxable in a
later year when you sell the property because your basis for the new property is generally the same
as the basis for the property you traded.
If you make a qualifying like-kind exchange with certain related parties, tax-free treatment may be
lost unless both of you keep the exchanged properties for at least two years.
The term like-kind refers to the nature or character of the property, that is, whether real estate is
traded for real estate. It does not refer to grade or quality, that is, whether the properties traded
are new or used, improved or unimproved. In the care of real estate, land may be traded for a
building, farm land for city lots, or a leasehold interest of 30 years or more for an outright ownership
in realty.