Like Kind Exchanges

In an article that appeared yesterday in the Wall Street Journal, the IRS has indicated they would be examining like kind (Starker) exchanges much more closely in the coming years. It was also noted that the IRS is planning on issuing further clarification on what qualifies for a like kind exchange. For example, is an apartment building and a piece of land similar enough to qualify for the tax deferral? Right now, opinion would be split amongst tax professionals.

A like kind exchange allows a taxpayer to defer a gain on a property they sell provided that they purchase an asset that is alike in nature. In order to qualify for this tax treatment, several steps must be followed correctly and I advise the use of an attorney in these transactions to ensure that all of the i's are dotted and t's are crossed.

The important thing to keep in mind is that if you choose this tax treatment be sure that you have the proper documentation. The IRS has noted that many taxpayers simply have not documented their transactions properly and this has been a concern for them.

The issue of like kind exchanges is likely to become a larger issue if the Capital Gains rate is raised in the next few years as more taxpayers will seek to defer their gains.


Mike