Like Kind Exchanges

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 There's a lot to like about like-kind exchanges If you own real estate that has appreciated in value, you may owe a sizeable capital gains tax when you sell. But tax law provides a way to postpone the tax. Here's how: Instead of a sale, you can swap your property for another property of a similar character in a transaction called a "like-kind exchange." To qualify, you'll need to meet specific conditions, such as completing the transaction within a certain period of time and making sure the property qualifies. Two of the timing requirements are strict. First, you must identify or actually receive the replacement property within 45 days of transferring legal ownership of the relinquished property. And second, you must receive title to the replacement property by the earlier of 180 days or your tax return due date, plus extensions, for the tax year of the transfer. Be aware of the second rule if the exchange will straddle tax years. Why? When you relinquish real estate late in the year, you might want to apply for a filing extension if you need more time to wrap things up. The rules are fairly lenient as to what constitutes "like-kind property." As an example, you might exchange an apartment building for a warehouse or raw land. However, both the relinquished and replacement real estate must be used as investment or business property. The like-kind tax break doesn't apply to swaps involving a personal residence. Like-kind exchanges may involve multiple parties, as it's unusual for you and a single real estate owner to each own property the other wants. In some cases, you might arrange for an individual who is in the business of making these exchanges work (known as a "qualified intermediary") to help consummate the deal. The end result is the same: You give up property and receive like-kind property in exchange. Keep in mind that you'll generally owe tax on any excess value, called "boot," that you receive in the deal. Boot can be more than just cash — for instance, it might represent partial forgiveness of a mortgage. If you're the one giving the boot, you realize no taxable income. If you think you can benefit from a like-kind exchange, contact us for more information. Tax season is here. Go to www.tenfortyplus.com and complete your online organizer (under forms and documents). Make your appointment using our online appointment system. Call 281-397-7777 and get a user id with password set up so you can schedule appointment, send encrypted data, and receive our newsletters. Regards, Joseph C Becker EA www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale/purchase of a business property in excess of $5,000 • Sale or purchase of a residence or other real estate.