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J.K. Lasser's Your Income Tax Professional Edition 2017 by J.K. Lasser Institute

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Chapter 6 Tax-Free Exchanges of Property

You may exchange investment or business property for “like-kind” property without incurring a tax in the year of exchange if you meet the rules detailed in this chapter. Gain may be taxed upon a later disposition of the replacement property because the basis of the replacement property is usually the same as the basis of the property surrendered in the exchange. Thus, if you exchange property with a tax basis of $10,000 for property worth $50,000, the basis of the property received in exchange is fixed at $10,000, even though its fair market value is $50,000. The gain of $40,000 ($50,000 – $10,000), which is not taxed at the time of the exchange, is technically called “unrecognized gain.” If you later sell the property for $50,000, you will realize a taxable gain of $40,000 ($50,000 – $10,000).

Where property received in a tax-free exchange is held until death, ...

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