Looking for some great business tax strategies? Business owners and real estate investors who want to sell property and acquire similar property at about the same time can benefit from a tax break called a like-kind or tax-deferred exchange which is a valuable tax-saving opportunity provided by the tax law. You can postpone some or all of the tax that would otherwise be due when you sell property at a gain by following certain rules.
The key to a like-kind exchange is that you swap assets that are similar to each other. Swapping out land for a strip mall or trading an old business vehicle for a new one is a good example of a like-kind exchange. Swapping your vehicle for an apartment building, however, would not qualify because they are not similar properties.  Other types of assets including inventory, accounts receivable, stocks and bonds, and your personal residence, don’t qualify for a tax-deferred exchange.
An equal swap is rare because a completed exchange typically requires some amount of cash or debt to change hands between two parties. Some items, including cash or other dissimilar property, may be taxable when received in an exchange.
Simultaneous exchange of the properties is not necessary but the replacement property must be specifically identified, in writing, within 45 days and must be received within 180 days (or by your tax return due date, if earlier) after the sale.
Finding two parties whose properties are suitable to each other is unusual in a real estate exchange. Since the rules allow for three-party exchanges, this should not be a problem. An intermediary, who will coordinate paperwork and hold your sale proceeds until you find a replacement property, will be used during a three-party exchange. Once the exchange is ready to be completed, he will then forward the money to your closing agent.
Exchanges allow you to trade up in value without owing tax on a sale and there is no limit on the number of times you can exchange property. Contact us today if you would like to learn more about tax-deferred exchanges.