Normally, when companies sell properties, they must pay taxes on any gain they receive. Like-kind exchanges, transactions in which companies trade properties, may be carried out without any immediate tax consequences.  They must satisfy IRS rules, however, which include:

• The properties must have the same “nature or character,” as set forth in IRS guidance.
• The exchanges can be business or investment properties put to a productive use.
• The exchanges can’t involve inventory, most securities and some other assets.
• Taxes must be paid on any cash or non-similar property that is part of the deal.

Keep in mind that like-kind exchanges are tax-deferrred transactions, not tax free.  When a company eventually sells the property it received in an exchange, it must pay tax on any gain from its original investment.  In the meantime, though, the business/company can use the funds it would have paid in taxes and it has acquired a new property that may better suit its needs without necessarily making a cash outlay.
On the flip-side, with the 15% capital gains rate set to expire, you’re not certain to what rate you are deferring, advises Kevin Aaron, Tax Specialist at Simons Bitzer & Associates. “That makes tax planning even more important in 2012,” states Aaron.
Please contact our office at (317) 782-3070 if you would like to determine whether like-kind exchanges can be a good strategy for your business as well as insights on their tax impact.