Schedule to Speak with a Specialist
Generally you cannot go wrong in an exchange if you remember the simple rule that “You must trade equal or up in equity and/or debt”. You may do a deferred exchange, but you must identify qualified replacement property within 45 days of the date you close on your relinquished property. You must actually close on the acquisition of the identified property within 180 days of the date you closed on your relinquished property.
You can complete an exchange as long as the relinquished property and the replacement property meet the definition of “like kind”. “Like kind” means the properties must be held for investment purposes or productive use in a trade or business (income producing). Basically, “like kind” property is any property not used as a personal residence. “Like kind” property may include leasehold interests of 30 years or more in duration, conservation easements, water rights, timber rights and mineral rights. Personal property exchanges are more specific in what is “like kind”, but can also be successful in completing livestock, equipment and vehicles.
In addition to the basic issues in each exchange, exchanges may have some especially complicated issues or traps for the unwary. Forgotten depreciation may lower the basis even more than originally thought or be subject to recapture. Related party ownership may create additional holding requirements. Property used for both personal residence and business or investment purposes may require some extra thought with regard to deal structuring. The 45 day identification period and the 180 day window for completion of the exchange can require some extra attention to detail. Building improvements on the replacement property may require extra work. Constant changes by the Tax Code regulations and other IRS and Treasury guidance requires that your exchange company be “up to speed” on the changes.