Like-Kind Exchange

AAA

DEFINITION of 'Like-Kind Exchange'

A tax deferred exchange that allows for the disposal of an asset and the acquisition of another similar asset without generating a tax liability from the sale of the first asset. This can include the exchange of one business for another or one real estate investment property for another property. An 8824 form must be filed with the IRS detailing the terms of the deal.

This is also known as a "1031 exchange".

INVESTOPEDIA EXPLAINS 'Like-Kind Exchange'

There are several important considerations with this type of exchange to ensure that a tax liability is not created upon sale of the first asset:

1. The asset being sold must be an investment property and can't be a personal residence.
2. The asset being purchased with the proceeds must be similar to the asset being sold.
3. Te proceeds from the sale must be used to purchase the other asset within 180 days of the sale of the first asset, although you must identify the property or asset that you are purchasing in the like-kind exchange within 45 days of the sale.

There are some limitations on the amount of capital gain that is tax deferred, so ensure that you check the latest tax rules before proceeding with a like-kind exchange.

RELATED TERMS
  1. IRS Publication 544

    A document published by the Internal Revenue Service (IRS) that ...
  2. Section 1031

    A section of the U.S. Internal Revenue Service Code that allows ...
  3. Reverse Exchange

    A type of property exchange wherein the replacement property ...
  4. Capital Gain

    1. An increase in the value of a capital asset (investment or ...
  5. Investment Real Estate

    Real estate that generates income or is otherwise intended for ...
  6. Internal Revenue Service - IRS

    A United States government agency that is responsible for the ...
Related Articles
  1. Home & Auto

    Tips For The Prospective Landlord

  2. Taxes

    Will Your Home Sale Leave You With Tax ...

  3. Active Trading

    Trade Properties To Keep The Taxman ...

  4. Taxes

    Sell Your Rental Property For A Profit

Hot Definitions
  1. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  4. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  5. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  6. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
Trading Center