Like-Kind Exchange
A nonrecognition exchange of business or investment real property for similar property.
REG loves the two-line computation: recognized gain = the lesser of realized gain or boot received, where boot is net debt relief plus cash or non-like-kind property received. The classic tell hands you the FMV of new property, cash, and relieved/assumed mortgages, daring you to recognize the whole realized gain — the trap. A realized loss is never recognized here (it’s deferred), so don’t elect §1031 expecting to bank a loss. Watch the substituted-basis follow-up: new basis = old adjusted basis + gain recognized + boot paid − boot received, preserving the deferred gain for a later sale.
Distinguish from the siblings. Capital gains rates don’t apply now — §1031 only defers until a future taxable disposition. Basis here is carryover, not the cost basis a normal purchase gives. Two killers: the 45-day identification / 180-day completion deadlines, and the related-party two-year rule — if either party disposes within two years, the deferred gain is triggered (narrow death/involuntary-conversion exceptions aside). (Some older banks still drill personal-property exchanges, no longer eligible.)
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