Tax Plan Analysis: for Business – ‘Like Kind’ Exchange


Change in ‘Like Kind’ Exchange

Prior to the Tax Cuts law, a non-taxable ‘like kind’ exchange was available for real estate and for tangible personal property. Therefore, there is no gain or loss when you trade in your car since it is treated as a like kind exchange.

Under the Tax Cuts law for transfers made after December 31, 2017, like kind exchange treatment is only available for real property that is not held primarily for sale. Tangible personal property no longer qualifies a like kind property.

Sandy’s elaboration: This has some major implications. For example, if you trade in a vehicle that you use for business, some gain or loss might be recognized upon the exchange. Thus, you might prefer to sell your vehicle and receive the cash to pay the tax on any gain or take the loss. In addition, selling a car gives a higher price vs trading it to a dealer.

Also, like kind exchanges of real estate might become taxable to the extent that you either receive cash or have exchanged some personal property located in the real estate. Thus, all exchanges should divide the exchange between the real estate and between the personal property. Thus, there should be a reasonable allocation to any personal property if there are some transferred as part of the exchange.

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