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Like-kind exchanges: Stay in parking zone

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in Small Business Tax,Small Business Tax Deduction Strategies

The “like-kind exchange” is one of the best tax breaks on the books. If you swap like-kind properties with another party—often one piece of real estate for another—there’s no tax liability if you complete the exchange in time (see below). But it is seldom possible to arrange a one-for-one swap. Usually, multiple parties are involved.

Strategy: Use an accommodator to “park” property until the deal can be consummated.

In a new private letter ruling, the IRS allowed the taxpayer to stretch the parking boundaries even further. (IRS PLR 201408019)

Here’s the whole story: Under Section 1031 of the tax code, you can defer taxable gain when exchanging properties that are similar in nature, except to the extent that you receive cash or other “boot” as part of the transaction. You must pay current tax on the gain up to the amount of boot received. Otherwise, you owe no tax until you sell the newly acquired property.

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