tax-free exchange

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 ?
The transaction is expected to be a tax-free exchange to the shareholders of DNB.
The transaction is structured in a manner to be a tax-free exchange and is expected to close in thesecond half of 2019, subject to satisfaction or waiver of closing conditions.
The exchange ratio is fixed and the transaction is expected to qualify as a tax-free exchange for shareholders of SI Financial.
The Court of Tax Appeals (CTA) en banc discussed the foregoing exception in a recent case (CTA EB 1713) where the Court emphasized the requisites of tax-free exchange, to wit: (a) the transferee is a corporation; (b) the transferee exchanges its shares of stock for property/ies of the transferor; (c) the transfer is made by a person, acting alone or together with others, not exceeding four persons; and, (d) as a result of the exchange the transferor, alone or together with others, not exceeding four, gains control of the transferee.
The transaction is intended to qualify as a tax-free reorganization for federal income tax purposes and to provide a tax-free exchange for MNB shareholders who receive Independent common stock as consideration.
The acquisition of MTA will be executed as a share exchange whereby the MTA shareholders will exchange 100% of the outstanding securities of MTA for common stock of BTI shares in a tax-free exchange. Completion of the transaction contemplated in the letter of intent is subject to customary conditions for this type of transaction.
The merger agreement therefore required, as a material condition to closing, that Latham issue an opinion under Section 721(a) of the Internal Revenue Code (the 721 Opinion) that this second step of the transaction should (meaning that it quite likely would) be treated by the tax authorities as a tax-free exchange. At the time the merger agreement was signed, neither Latham nor the other counsel working on the transaction viewed this condition as problematic because the cash component of the transaction was, at that point, consideration for ETC stock of equivalent value.
The transaction is structured in a manner to be a tax-free exchange and is expected to close in the first quarter of 2017, subject to satisfaction or waiver of closing conditions.
Once the contribution is made, clients are subject to a seven-year holding period to attain the benefit of the tax-free exchange. Clients who leave the fund early could face severe penalties.
The conversion had no impact on the business or management of the company and has been treated as a tax-free exchange under relevant Internal Revenue Service regulations.
Newmark Grubb Knight Frank (NGKF) has arranged the simultaneous sale and purchase of two high-end, flex industrial buildings in Hauppauge, Long Island as part of a 1031 tax-free exchange.
A direct exchange by an insurance company of a portion of an existing annuity contract to an unrelated insurance company for a new annuity contract is generally a tax-free exchange under IRC Section 1035.