No Trespassing

Entrepreneur, Jan, 2000 by Joan Szabo

There are also a number of technical requirements involved in like-kind exchanges, says Golbert. If you decide to use the like-kind exchange strategy, be sure to work with a tax expert who specializes in that area. For example, the IRS will crack down on efforts to refinance a piece of property before a like-kind exchange takes place. Taxpayers often try to do this so they can take cash out of the property before making the exchange. "The government doesn't approve of that and may assess tax on the money received," Golbert explains.

For the most part, like-kind transactions take some time to accomplish, especially when it comes to finding the property needed for the exchange to take place. Fortunately, the IRS has taken these factors into consideration. Under its regulations, an exchange doesn't have to take place simultaneously; it can be accomplished over a six-month period.

If you're in a position where a like-kind exchange would benefit your tax situation, take the time to consider it. Says Golbert: "This technique not only defers tax, but it can be one of the most economically effective ways to diversify and improve your holdings."

Joan Szabo is a writer in Great Falls, Virginia, who has reported on tax issues for more than 14 years.