A real estate swap is the act of exchanging properties for the purpose of deferring taxes. This exchange requires a third party intermediary and must follow the rules in Section 1031 of the Internal Revenue Code.
It is also known, more commonly, as a like-kind exchange.
Residential properties are not included in real estate swaps. Only those meant owned as investments or for business purposes can be exchanged in this way.
Timing is important in these exchanges. Section 1031 allows only 45 days to identify the replacement property after the sale of a property is closed. Acquiring the replacement property must be done 180 days after the disposal of original property. A disinterested third party must clear all transactions. The investor only pays taxes once actual cash exchanges hands.
Synonyms
Like-Kind Exchange
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