| Sales & Exchanges / Multi-party like-kind exchanges |  |
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The typical multi-party exchange
arises when one party (let's call her Alice) who owns Whiteacre, seeks
to exchange it for Blackacre, owned by Carol. Carol, however, wants to
sell Blackacre rather than exchange it for other realty. A third party,
Bob, wants to buy Whiteacre, but if Alice simply sells it to him, she'll
have to recognize her gain on the sale. The transaction can be arranged
as follows: Bob buys Blackacre from Carol. Bob
then exchanges it with Alice for Whiteacre. Alice should not have to
recognize any gain on the sale under the like-kind exchange rules. If
Whiteacre is worth more than Blackacre, Bob will have to pay extra
consideration in the exchange. If the extra consideration is cash (or
other non-like- kind property), Alice will have to recognize her gain up
to the amount of extra consideration received. Please let me know if you
would like more information on how the like-kind exchange rules work in
general. Alternatively, Alice could have
first directly exchanged Whiteacre for Blackacre with Carol. Carol could
then sell Whiteacre to Bob. Again, Alice would be able to avoid tax on
her gain on Whiteacre under the like-kind exchange rules. The important conclusion to draw from the above example is that you may be able to accomplish a like-kind exchange without having to find an owner of property willing to trade with you directly. If you can more simply find (1) a buyer for your property and (2) property for sale that you seek to acquire, you should be able to structure a like- kind exchange as the parties in the above examples did. |
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