Like Kind Exchange

Feb 21, 2007 3 Replies
B

Would this transaction qualify as a like kind exchange? If not, what part or parts of the transaction disqualifies it. TP owns land out of state, which he purchased 5 years ago while a resident of that state. Land is held for investment. TP purchases land in March 2006 in current state of residence, borrowing funds from a bank in order to purchase. TP sells out of state land in October '06 and uses proceeds to pay off mortgage. TP asserts this is a like kind exchange since both pieces of land are held for investment. Thanks



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B

Nope. Having control of the proceeds of the sale of the old land is the fatal flaw.

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L

There are several requirements of section 1031 exchanges that TP failed to comply with. To begin with, the proceeds from the original sale must be held by a qualified intermediary. Under section 1031, the selled cannot receive ANY proceeds before certain other conditions are met. Second, the intermediary must be the party purchasing the replacement property. Third, section 1031 has certain time requirements for identifying and closing on the replacement property. TP has not complied with these requirements. So, no, this is NOT a like kind exchange and he must report the sale and pay any tax due on the gain. Lanny K. Williams, CPA Nawarat, Williams & Co., Ltd. Income Tax Services for Expatriate Americans

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D

This is what happens when you do after-the-fact tax planning. It is disqualified because he failed to use an intermediary and the timing is wrong. For a few hundred shekels, he could have gotten it right. But that happens to people who think they can handle a complex tax-driven question by themselves.

Dick

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