Tax Tip Spotify Podcast and/or WordPress Blog Post and Related Party Like Kind Exchanges

Special rules apply to like-kind exchanges made with related parties, either directly or indirectly. If you exchange real property directly or indirectly with a related party, the original exchange will not qualify for tax deferral if either of the exchanged properties is sold or disposed of within two years of the transfer. The postponed gain becomes taxable at the time of the disqualifying disposition. This treatment applies to both parties to the exchange. For this purpose, a related party includes your spouse, child, grandchild, parent, grandparent, brother, sister, or a related corporation, S corporation, partnership, trust, or estate. An exchange made indirectly related party includes (1) an exchange made with a related party through an intermediary (such as qualified intermediary or an exchange accommodation titleholder, or (2) an exchange made by a disregarded entity (such as a single member limited liability company) if you or a related party owned that entity.

The two-year holding period requirement does not apply to dispositions due to death, compulsory or involuntary conversions, or non-tax-avoidance purposes. The running of the two-year holding period is suspended during any period when a party’s risk of loss with respect to the property is substantially diminished by (1) the holding of a put with respect to the property, (2) the holding by another person of a right to acquire the property, or (3) a short sale or any other transaction.

Brenda Fitch Real Estate Professional
Brenda Fitch Real Estate Professional

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(Updated 04245021)

Published by Don Fitch, CPA

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