Realty411 Magazine Featuring Eric Counts, Credit Nerds | Page 64

What is Like-Kind Property?
By Rusty Tweed
Many of the people that come into my
office have a huge misconception of what
types of properties they can exchange
into. Most people I’m dealing with are
selling multi­family rentals, for example, a four­plex or 6­
unit apartment building. They think that the IRS definition
of “like­kind property” is another four­plex or 6­unit
building. The truth is the IRS considers any deeded
property that you don’t live in and is purchased for
investment purposes qualifies as “like­kind.” For example,
if you sell a 6­unit building, you can buy a piece of raw
land, or several single­family residences or a small
commercial building. They all are considered “like­kind”
under the IRS guidelines. The only property that wouldn’t
qualify would be a home that you immediately moved into
and used as your primary residence. It can only be an
investment property, not your home.
The replacement property must be valued as equal or
greater to the property you sold. For example, if you sold a
building for $800,000, you would have to buy one or more
properties with a total value of $800,000 or greater.
Another rule you must follow is that any debt on your
property has to be replaced dollar for dollar as well. So if
your $800,000 had a $400,000 mortgage on it, the
replacement property(s) would have to have at least
$400,000 of debt on it or greater.
Another example would be selling an $800,000 property
with no debt and going into a larger property using all
$800,000 of equity but buying a $1,600,000 property that
has 50% loan to value (LTV) or $800,000 of debt. You
can always “trade up” so this exchange would qualify as
well.
These are very simple examples, everybody has details
that must be taken into account, so be sure and discuss your
particular exchange with a tax professional to make sure
you’re following all the rules.
The truth is the IRS
considers any deeded
property that
you don’t live in
and is purchased
for investment purposes
qualifies as “like­kind.”
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