Generally, if a landowner sells land, he will owe taxes on the amount he receives. But, by using a transaction known as a like-kind exchange, a landowner may be able to defer taxes if he exchanges one parcel of land for another.

The idea behind this section of the tax code is that when an individual or a business sells a property to buy another, no economic gain has been achieved.  An exchange must satisfy a number of requirements before it can qualify for this tax benefit. Most importantly, the properties involved must be held for investment or for the productive use in a trade or business, such as agriculture.

Several important considerations with this type of exchange are as follows:

The asset being sold must be an investment property or have been used in a trade or business and can’t be a personal residence. 

The asset being purchased with the proceeds must be held for investment or for the productive use in a trade or business. 

You should consult your tax advisor for time requirements for identification and closing of replacement property.  For specific situations be sure to consult a tax professional. For more information, contact me at (785) 587-6614.