Like-Kind Exchange

See: Like-For-Like Sales.

Just a place where you can find your kind of people. For you, the local leather bar might be your like-kind exchange. Or maybe you find your like-kind exchange under the highway overpass at midnight on Saturday nights. Or at the rat-fighting pits. We're not here to judge.

Actually, though, a like-kind exchange is a stipulation in U.S. tax law. It describes what to do with transactions where an asset is exchanged for another similar asset.

You and your neighbor just trade houses. That situation would define a like-kind exchange. One asset flipped for another, similar asset.

Usually, the series of transactions is more complicated. You sell your house. Then, a few months later, you buy a new new house with the cash you earned from the initial sale.

The tax-law implication comes in because you don't want to have to pay taxes on that first sale. If you sell a house for $500,000 and then buy another house for $510,000, you don't want to face down a $100,000 tax bill for essentially moving across the street.

These situations are also known as 1031 exchanges.

Related or Semi-related Video

Finance: What is a 1035 Exchange?1 Views

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Finance a la shmoop....what is a 1035 exchange? well why don't they

00:08

give these things a name like what pathos is there in a number well it [Arrow pointing to star in the solar system]

00:12

makes your life miserable remembering all these numbers and frankly doesn't

00:15

make our life any easier writing pithy epithets about them you know as we go

00:20

but all right we'll try here we go...A 1035 exchange is a swap more

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specifically it's a swap relating to life insurance policies or annuities you

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have one annuity or life insurance policy and want to exchange it for [Two life insurance policy documents]

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another of similar value so you use at 1035 exchange to do it's like a legal

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structure why well because a 1035 is tax-free.. tax-free yeah that's good why

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would there be a tax when you're changing policies well an insurance

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policy is just another form of an investment and with it comes a gain

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usually over time so if you're exchanging an in theory you [Insurance policies exchanging]

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could be realizing a gain that's taxable so if one policy fit your feet from age

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25 to 45 and then it tripled in value over that time well you'd have

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"realized a gain" if you sold it for cash and then use that cash to buy

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another and you'd have a whole lot less cash left over after the feds you know

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taxed you and being able to deploy that 1035 exchange tax loophole well you get

01:20

to keep all the value in that policy and use it to buy all the value of another

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policy thank you insurance industry lobby and yeah you'll be dead but well [Richie Richpants gravestone]

01:30

others will too

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