tax-free exchange

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Tax-Free Exchange

Under Section 1031 of the Internal Revenue Code, the exchange of two assets of like kind, even if of different quality, that are used for a business or for investment purposes. The goods exchanged are not assessed capital gains taxes. More precisely, capital gains taxes are deferred until an asset is resold with no intention of reinvestment. Tax-free exchanges also apply if one sells an asset with the intention to use the proceeds to buy a similar asset. For example, if a farmer sells his farm and uses the money to buy another farm, capital gains taxes are likely deferred on the money he made on the sale of the first farm. The same would be true if the he traded farm for farm.

tax-free exchange

An exchange of assets between taxpayers in which any gain or loss is not recognized in the period during which the exchange takes place. Rather, taxpayers are required to adjust the basis of assets exchanged.

tax-free exchange

A common term for a tax-deferred exchange. It is not tax free; one pays the taxes at a later date. See 1031 exchange.

References in periodicals archive ?
Bay Commercial Bank also offers business escrow services and facilitates tax-free exchanges through its Bankers Exchange Division.
Insufficient advisor exams, tax-free exchanges of variable annuities, binary options and reverse churning are among the top concerns the Securities and Exchange Commission's Investor Advocate has in the new year.
SOME STATE INSURANCE regulators are looking into the idea of allowing tax-free exchanges of corporate-owned life insurance policies (COLI).
Tax-free exchanges recognize that when property is exchanged by a taxpayer for "like kind" property, gain or loss need not be recognized and the transaction should not be subject to current taxation, since the taxpayer is in essentially the same position after the transaction as he was before the transaction.
83's application to tax-free exchanges is further exacerbated by restricted stock's effect on continuity of proprietary interest (COI).
Some of the topics covered include vacation homes, tax-free exchanges, real estate and retirement plans, homestead exemptions, landlord liability, insurance, and asset protection.
Congemi is more likely to use annuities when people have "too much money to leave open to taxation for four or five years" or when people own annuities that are inappropriate for them and need to be "rescued" through tax-free exchanges as permitted under Section 1035 of the tax code.
That is why so many professionals have been recommending 1031 tax-free exchanges to their clients.
It includes an examination of how an insurance policy can qualify as a "life insurance contract" according to the IRC, exceptions to the non-taxability of cash-value growth and proceeds payable at death and how to ensure tax-free exchanges of insurance policies.
Tax-free exchanges of annuity contracts issued before August 13, 1982, retain some of the tax breaks applicable before the Tax Equity and Fiscal Responsibility Act of 1982.
Cost-segregation and tax-free exchanges are still great strategies
If 1035 tax-free exchanges are useful when VA contract values are in excess of the purchase price, what about when contracts are under water?