Normally, when companies sell properties, they must pay taxes on any gain they receive. Like-kind exchanges, transactions in which companies trade properties, may be carried out without any immediate tax consequences. They must satisfy Internal Revenue Service rules, however, which include:
The properties must have the same “nature or character,” as set forth in IRS guidance.
- The exchanges can be business or investment properties put to a productive use.
- The exchanges can’t involve inventory, most securities and some other assets.
- Taxes must be paid on any cash or non-similar property that is part of the deal.
Keep in mind that like-kind exchanges are tax-deferred transactions, not tax free. When a company eventually sells the property it received in an exchange, it must pay tax on any gain from its original investment. In the meantime, though, the business/company can use the funds it would have paid in taxes and it has acquired a new property that may better suit its needs without necessarily making a cash outlay.
Want more information about whether like-kind exchanges can be a good strategy for your business and insights on their tax impact? We can help. Contact us today for expert advice on the best ways to address your business and tax concerns.