LeRoy Metz II, Attorney at Law

LeRoy L. Metz, II


Posted on August 30, 2014

The like-kind exchange rules permit deferral of the obligation to pay federal income tax when an asset, which has been held for productive use in a taxpayer’s trade or business or for investment, is exchanged for “like-kind property.”

This tax policy favors allowing a taxpayer who continues to have her money invested in assets needed for business or investment to retain those monies in the enterprise, rather than syphoning part of the funds into the federal treasury.  The gain on the exchanged asset would be subject to income tax at such later time as the taxpayer disposes of the property, so the taxing opportunity is not entirely eliminated, it is just delayed as long as the taxpayer retains that or a similar investment.  The like-kind exchange rules have many exceptions and do not apply to securities, inventory, partnership interests or a number of other assets, but the rules are a marvelous means of enabling taxpayers to manage their tax burdens.

Why we care is that this important tax deferral opportunity is in danger of being eliminated by one of the proposals before the Senate Finance Committee.  Because these rules may disappear, if you are considering a like-kind exchange, you should try to get the exchange accomplished before the tax law changes.  Additionally, we encourage communications with your Congressional representatives, if this is a tax break that you want to preserve.

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