Renewed Interest in Like Kind Exchanges in 2013

The Internal Revenue Code Section 1031 allows taxpayers to defer the income tax on gains on the “sale” of property used in a trade, business or investment property if the taxpayer instead engages in an exchange of such property and acquires qualified replacement property (a “like-kind exchange”).  During calendar year 2012, with the knowledge that income tax rates were likely to increase in 2013, tax practitioners were advising taxpayers to sell in 2012 and pay taxes at 2012 rates, rather than taking advantage of the like-kind exchange provisions and deferring income taxes to a later year when tax rates would be higher.  Now that there is more clarity in the tax rates for 2013 and beyond, and tax rates have increased, taxpayers should, for “sales” in 2013, once again consider taking advantage of the like-kind exchange provisions instead of an outright sale, and deferring income taxes otherwise due on such 2013 sales.

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