Like-Kind Property

Posted in Finance, Accounting and Economics Terms, Total Reads: 626

Definition: Like-Kind Property

Selling property of one kind and reinvesting that money in buying another property of the same kind will provide a gain which is tax deferred under Internal Revenue Code (IRC) section 1031 of like kind exchanges.

This exchange is not tax free as the tax related to gains (capital gains /income tax) has to be paid in some future time period.

Under this section property of same nature and class are included for the exchanges.

For example: a land can be exchanged for same type of land not some buildings/factories, a car in exchange of another car not a truck or bus.

Properties under personal investment and business/corporate investment are considered to be different under like kind exchanges. Even real estate exchanges are considered to be different than other exchanges.

This exchange provides the benefit of diversifying the assets under management or divesting multiple assets to a single asset which may help increase the money flow in the organization. It can also help in providing good rate of return with minimum tax liability.

Some items are excluded to be covered under this which includes stocks, bonds, and debt instruments so the person doing exchange must be aware whether the item which he is going to exchange is covered under the section 1031 or not.

The exchange between the two items can be of following types

-Simultaneous exchange

-Delayed exchange

Both personal and corporate property exchanges are covered under this two types.

Hence, this concludes the definition of Like-Kind Property along with its overview.

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