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IRS ISSUES LIKE-KIND EXCHANGE 'FACT SHEET'

March 06, 2008

The IRS has posted a handy summary of the Section 1031 "Like-Kind Exchange" rules (FS-2008-18). From the Fact Sheet:

Gain is deferred, but not forgiven, in a like-kind exchange. You must calculate and keep track of your basis in the new property you acquired in the exchange.

The basis of property acquired in a Section 1031 exchange is the basis of the property given up with some adjustments. This transfer of basis from the relinquished to the replacement property preserves the deferred gain for later recognition. A collateral affect is that the resulting depreciable basis is generally lower than what would otherwise be available if the replacement property were acquired in a taxable transaction.

When the replacement property is ultimately sold (not as part of another exchange), the original deferred gain, plus any additional gain realized since the purchase of the replacement property, is subject to tax.

Related:

IRS GREEN-LIGHTS VACATION HOME SWAPS

Tax Update Section 1031 coverage

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