Raffel Financial Services, LLC

19105 N. 85th Lane

Peoria, AZ 85382-8715

 

(623) 266-9362 Office

(623) 521-8008 Cell

(623) 251-4066 Fax

traffel@cox.net

 

Like-Kind Tax Deferred Exchanges

There is a procedure that can be used to defer income taxes on the sale of an investment property when you follow that sale with the purchase of another similar property. In summary, all six of the following criteria must be met in order to qualify as a like-kind tax deferred exchange:

1)  Both the property traded and the property received must be held by the taxpayer for business or investment purposes.

2) The property must not be held for sale to customers, such as inventory or merchandise.

3) There must be an exchange of like property. In general, any kind of real estate is treated as of like kind with other real estate. By contrast, different kinds of personal property (i.e. equipment and vehicles) are not treated as like kind.

4)  Stocks, bonds, notes and other securities do not qualify for a like kind exchange.

5)  The property to be exchanged must be identified in a written agreement within 45 days after the transferred property is surrendered.

6)  The property in the exchange must be received on or before the earlier of:

   180 days after the transfer of the property given up, or

   The due date (including any extensions) for the tax return year in which the transfer of the property given up occurs.

In addition, the properties must be transferred through a qualified intermediary (such as a registered title company); any money or other assets that are in addition to the exchanged properties must also flow through the intermediary.

The cost basis of the taxpayers exchanged property transfers to and becomes the cost basis of the new property and any liabilities transferred to the other party in the exchange are netted against any liabilities transferred to the taxpayer.

Additional information about tax deferred exchanges can be found in IRS Publications 544 and 550.