Contact us

[ return to list ]

How to Swap Real Estate Tax-free

Tax bonus: If the properties are “like-kind,” you can avoid any current tax on the exchange. This refers to the nature, character or class of the property—not its grade or quality. For example, a swap of an office building for an apartment building of the same value can qualify as a like-kind exchange. Result: Neither party has to report taxable income.

In the real world, trading real estate properties is usually not so simple. Suppose you want to acquire real estate, but the owner is not interested in any of the properties that you own. Fortunately, you can take this concept one step further. The exchange can involve multiple parties if the two owners cannot agree on the properties to be swapped. The IRS has approved the use of a qualified intermediary to facilitate the deal as long as the intermediary is not connected with one of the other parties.

Be aware that there are time restrictions involved in a multiple-party swap. In general, (1) the property you are receiving must be identified within 45 days of the original transfer and (2) you must take title within 180 days (or by your tax return due date plus any extensions, if that's sooner).

Example: Say that Mr. Tinker wants to acquire property owned by Mr. Evers. However, Tinker does not own any property that Evers desires in return. After discussing a number of locations, the two of them strike a deal with Mr. Chance. Evers agrees to take Chance's property, Chance acquires title to one of Tinker's properties and Tinker gets the property he wanted all along. Assuming like-kind properties are involved, the entire transaction may be tax-free if the deal is completed within the necessary deadlines.

Caution: If you receive any money or property as part of the deal, the additional amount—called “boot” in tax lingo—is subject to tax. However, no loss is recognized by the taxpayer who provides the boot. The assumption of a larger mortgage is also treated as boot for this purpose.

This is a complex area of the tax law, so be sure to consult with a professional tax adviser before you strike a deal.

[ return to list ]




	[ return to list ] How to Swap Real Estate Tax-free Tax bonus: If the properties are “like-kind,” you can avoid any current tax on the exchange. This refers to the nature, character or class of the property—not its grade or quality. For example, a swap of an office building for an apartment building of the same value can qualify as a like-kind exchange. Result: Neither party has to report taxable income. In the real world, trading real estate properties is usually not so simple. Suppose you want to acquire real estate, but the owner is not interested in any of the properties that you own. Fortunately, you can take this concept one step further. The exchange can involve multiple parties if the two owners cannot agree on the properties to be swapped. The IRS has approved the use of a qualified intermediary to facilitate the deal as long as the intermediary is not connected with one of the other parties. Be aware that there are time restrictions involved in a multiple-party swap. In general, (1) the property you are receiving must be identified within 45 days of the original transfer and (2) you must take title within 180 days (or by your tax return due date plus any extensions, if that's sooner). Example: Say that Mr. Tinker wants to acquire property owned by Mr. Evers. However, Tinker does not own any property that Evers desires in return. After discussing a number of locations, the two of them strike a deal with Mr. Chance. Evers agrees to take Chance's property, Chance acquires title to one of Tinker's properties and Tinker gets the property he wanted all along. Assuming like-kind properties are involved, the entire transaction may be tax-free if the deal is completed within the necessary deadlines. Caution: If you receive any money or property as part of the deal, the additional amount—called “boot” in tax lingo—is subject to tax. However, no loss is recognized by the taxpayer who provides the boot. The assumption of a larger mortgage is also treated as boot for this purpose. This is a complex area of the tax law, so be sure to consult with a professional tax adviser before you strike a deal. [ return to list ]
1105 Dumont Court, Matthews NC 28104 Fax:704-845-0928 © Copyright 2004 Desai & Desai, LLP