Deferring Federal Tax Liability with “Like Kind” Exchanges
The exchange can include like-kind property exclusively or it can include like-kind property along with cash, liabilities and property that are not like-kind. If you receive cash, relief from debt, or property that is not like-kind, however, you may trigger some taxable gain in the year of the exchange. There can be both deferred and recognized gain in the same transaction when a taxpayer exchanges for like-kind property of lesser value.
If you complete a 1031 like kind tax deferred exchange, you must follow the law and the IRS regulations very meticulously. Timing, having a plan of action, and taking appropriate action is everything. It helps to have a real estate broker with up to date knowledge of the like kind real estate markets. One of the risks in the transaction is with 1031 exchange companies that hold money.
My recommendations:
- I would ask for references and a track record when transferring large amounts of money with an intermediary company
- Beware of schemes. Taxpayers should be wary of individuals promoting improper use of like-kind exchanges. Typically they are not tax professionals. Sales pitches may encourage taxpayers to exchange non-qualifying vacation or second homes.
- Many promoters of like-kind exchanges refer to them as “tax-free” exchanges not “tax-deferred” exchanges.
- Taxpayers may also be advised to claim an exchange despite the fact that they have taken possession of cash proceeds from the sale.
- Read the IRS information fact sheet on 1031 exchanges
- Review IRS form 8824
- Retain a qualified certified public accountant that can help you plan and implement all aspects of the transaction.
Copyright 2017 Nate Bernstein, Attorney at Law. LA Real Estate Law Group. All Rights Reserved.
The author of this article, Nate Bernstein, Esq., is the Managing Counsel of LA Real Estate Law Group, and a member of the State Bar of California and his practice concentrates in the areas of complex real est
Any statement, information, or image contained on any page of this article not a promise, representation, express warranty, or implied warranty, or guarantee about the outcome of a legal matter, and shall not be construed as being formal legal advice. All statements, information, and images are promotional. All legal matters are factually specific, laws change on a daily basis, and courts interpret laws differently. No express or implied attorney client relationship shall be inferred from any statement, information, or image contained any pages of this website. No attorney client relationship is formed until the client or the client’s representative, and the attorney signs a written retainer agreement.