You may exchange real estate held for investment for other investment real estate and incur no immediate tax consequences. On a fully tax-free exchange of “like-kind” property, you do not recognize any gain realized on the exchange and you cannot deduct any loss. If you had a gain, the potential tax on the gain is postponed until you sell the new property for more than your basis. A tax-free exchange may also defer a potential tax due on gain from depreciation recapture and might be considered where the depreciable basis of a building has been substantially written off. Here, the building may be exchanged for other property that will give larger tax deductions.
To transact a fully tax-free exchange, you must satisfy these conditions: