The word “exchange” in real estate refers to like-kind property. This type of property is payment towards the purchase of a new property. The transaction is not taxable because the buyer is selling one property to purchase another and is not making a profit in the transaction. The properties must be similar in character, regardless of differences in quality or grade, to qualify as an exchange under the tax code. In order to qualify for the tax exemption, an exchange must be more than just selling one piece of property and purchasing another. The properties must be of “like kind,” with both being investment properties or for use in a business. An industrial building in exchange for land or a shopping mall in exchange for an office are acceptable “like-kind” properties. In exchanging “like-kind” properties, no gain or loss accounted for under Code Section 1031 of the Internal Revenue Code.
