A brief look at like-kind property trades

Trading property of a similar kind for business purposes between people is common among Texans. The advantage of making a like-kind trade is that you do not have to pay capital gains taxes. However, there are a few things to consider.

The properties do not have to be the same

The properties do not have to be the same. For instance, you can trade farmland for a downtown business location or trade an apartment complex for a factory. Furthermore, the two properties do not have the same rights. For instance, land held with permanent rights can be traded for a property with rights to improvements. The two properties can be in different locations but must be in the United States.

Trading a home

Generally, you cannot trade your home in a like-kind deal. The possible exception is if you live in one unit of an apartment building and rent the others to generate income. In that case, you can like-kind trade the rental property and use capital gains tax relief to offset the portion where you live. In most cases, you cannot like-kind trade your residence, second home or vacation home.

Like-kind trade of goods

In the past, you could like-kind trade almost anything, but the government has put a stop to that. Remember that to qualify the trade must be properly used to generate income, either as a business or as an investment. Therefore, you cannot trade physical items; you would have to sell them and pay the appropriate taxes as outlined in tax law.

Like-kind trades can happen on any property, regardless of its location in the United States, designed to earn money by a business or held as an investment.