Posted on January 20, 2005 at 16:44:50:
Sell a property at a gain, and you’ll owe capital gains tax. But there’s an alternative—swap a property in a “like-kind” exchange and put off the tax liability until you sell that property, or the next or the next after that. You can defer the tax indefinitely, until you have offsetting losses—or even until you die, when your heirs can take on the property with a stepped-up basis that cuts out your tax obligation completely.
There are rules to play by. This works for business or investment property only, not your home. Trading business equipment, you can trade only for similar equipment—a car for a car, a drill press for a drill press. Real estate, however, can be swapped for any other kind of business or investment real estate. Cash received in a swap and not used to buy replacement property is taxable.
Work with an expert who knows all the technical rules and may be able to help you find a swap partner, or arrange a three-way swap.