Normally, when companies sell properties, they must pay taxes on any gain they receive. Like kind
exchanges, transactions in which companies
trade properties, may be carried
out without any immediate
tax consequences.
They must satisfy
IRS rules, however, which include:
• The properties must have the same "nature or character," as set forth in IRS
guidance.
• The exchanges
can be business or investment properties put to a productive
use.
• The exchanges
can't involve inventory, most securities and some other assets.
• Taxes must be paid on any cash or non-similar property
that is part of the deal.
Keep in mind that like-kind exchanges
are tax-deferred transactions, not tax free.
When a company eventually sells the property
it received in an exchange, it must pay tax on any
gain from its original investment. In the meantime, though,
the business/company can use
the funds it would have paid in taxes and it has acquired a new property
that may better suit its needs without
necessarily making a cash outlay.
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