Deferred Like-Kind Exchange Lawyers

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Deferred Like-Kind Exchange

When a taxpayer enters into a like-kind exchange to acquire another property, he or she generally will not need to recognize any gain or loss from the transaction. In reality, simultaneous exchanges are very rare. Tax law provides special rules in which deferred (i.e. non-simultaneous) like-kind exchange can qualify for like-kind exchange treatment.

What Is a Deferred Like-kind Exchange?

A deferred like-kind exchange is an exchange, pursuant to an agreement, in which the taxpayer transfers like-kind property held for productive use in a trade or business or for investment and later receives like-kind property to be held for productive use in a trade or business or for investment.

In addition, the exchange must meet the following requirements in order for it to qualify as a like-kind exchange:

1. The replacement property must be identified within 45 days after the date on which the taxpayer transfers the relinquished property; and

2. The replacement property must be actually received before the earlier of:
(a) 180 days after the taxpayer transfers the relinquished property, or
(b) the due date, including extensions, of the taxpayer's income tax return for the year in which the transfer of the relinquished property occurs.

Thus, the period in which the replacement property must be received may actually be less than 180 days after the transfer of the relinquished property if the taxpayer's income tax return is due before that time.

What Does "Identify" Mean?

For purposes of the like-kind exchange rules, a replacement property is "identified" if it is:

1. Designated as replacement property in a written agreement signed by the taxpayer and hand delivered, mailed, telecopied, or otherwise sent before the 45 day period to the person obligated to transfer the replacement property or any other person involved in the exchange other than the taxpayer or certain agents and closely related parties to the taxpayer; and

2. Unambiguously described in such written agreement.

What Qualifies as a Deferred Like-Kind Exchange

If you sell your property for cash and then use the cash to purchase a replacement property, this will NOT qualify as a deferred like-kind exchange. Like-kind exchange treatment does not apply to a sale of property followed by a purchase of like-kind property. Furthermore, if the taxpayer has actual or constructive receipt of cash for the full amount of what the relinquished property is worth before the exchange is completed, then the transaction will be deemed a sale and will not qualify for like-kind exchange treatment.

Do I Need an Attorney to Help Me with My Tax Problems?

Tax laws are complex and ever-changing. Although there are various tax preparation softwares on the market that may help you with your tax problems, they cannot provide the same level of service that an experienced and knowledgeable tax attorney can. If you are unsure about the characterization of your transaction or you need someone to represent you before the IRS, a tax attorney can help you.

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Last Modified: 01-29-2014 04:18 PM PST

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