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Properly Structuring a Like-Kind Exchange
Tamara Partridge

You have multiple properties that you want to sell and to perform a like-kind exchange.  Do you want to treat these sales as a single exchange or multiple exchanges?  It depends.  According to the Treasury Regulations, you are allowed to identify up to three replacement properties without regard to the fair market value (FMV) of the properties (the “3-property rule”).  If you sell four properties and treat them as separate exchanges, then you can identify up to twelve properties.  If the properties are structured as one deferred exchange, then you are limited to identifying three properties.  This limitation gives rise to a greater likelihood to realize gain if properties with relatively higher FMVs could not be identified.  There are various considerations as to how to structure a like-kind exchange as separate exchanges as opposed to a single exchange.

Documentation is important when structuring a like-kind exchange.  Each sale should be documented as a separate exchange with a separate sales agreement.   Each property should have a single listing agreement and be negotiated as a separate sale, especially if there is a single buyer for multiple properties or related buyers.  If the seller advertises the property as a single sale by the broker, then it is highly likely that it will be treated as a single exchange.  If the properties or parcels are adjacent, then the sales may be treated as a single exchange, regardless of how the sales are negotiated or documented.  However, if each parcel has a separate practical use, then it is more likely that they would be viewed as separate exchanges.

Another aspect to consider when structuring like-kind exchanges is timing.  When multiple properties are relinquished in a single exchange, the 45-day identification time period and 180-day exchange period start running on the day that the first relinquished property is sold.  If the transactions were structured as separate sales, then each exchange would have its own 45-day identification and 180-day exchange periods.  Additionally, it may be helpful if the sales agreements are entered into on separate dates.  If there is a single buyer for multiple properties, then it is more likely that the transactions will be treated as separate sales, if they close on different dates.  Lastly, each transaction should be closed in separate escrow accounts, with separate escrow instructions and closing statements.

In Conclusion

When multiple properties are relinquished in a like-kind exchange, the taxpayer should consider structuring each transaction as a separate sale.  Separate deferred exchanges provide more flexibility with timing periods and the number of properties which can be identified.  There may be instances where a single exchange is easier to conduct due to negotiations and the value of the properties to be identified.  However, each transaction should be analyzed in advance to determine how the exchange should be structured.

For more information on like-kind exchanges, contact Tammy Partridge at [email protected], or call her at 312.670.7444. Visit to learn more about our Real Estate Group.

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