TAX OBLIGATION WILL BE DEFERRED

The major reason for undertaking a like-kind exchange of property, as opposed to an outright sale and subsequent reinvestment, is to defer paying income taxes on the disposition of the old property.

The income tax liability resulting from a taxable sale of property reduces the amount of funds available to reinvest in new property. By exchanging old property for new, the taxpayer retains the use of nearly all equity until the occurrence of a future taxable event, such as a sale of the replacement property.

The taxpayer may continue to avoid recognizing gain until his or her death, at: which time the gain may escape income taxation because of the stepped-up basis that the taxpayer's heirs may obtain in the property. The fair market value of the property held at death, however, is includable in the taxpayer's estate and subject to estate tax, Internal Revenue Code 2033.