same personal property (a car for a car, but not a car for a boat). Real property can be raw or improved land. There are very specific rules for the amount of time a taxpayer has to identify replacement property and for the entire transaction to be finalized. If the exchanges are not simultaneous, a “qualified intermediary” must be used to hold any cash proceeds. Done correctly, a like kind exchange is a great way to postpone paying tax.

With Lani’s situation, the IRS would likely look to a Tax Court ruling, Bloomington Coca-Cola Bottling Co. v Comr. In that case, a taxpayer conveyed an old plant and cash to a contractor in consideration for the construction of a new plant on the taxpayer’s own land.

The court held that the transaction was the purchase of a new facility and not an exchange of property, because the taxpayer already owned the land on which the new plant was constructed.

In similar cases, the courts and IRS have said that where the taxpayer is liable for construction costs and selects the construction manager, the taxpayer is buying the construction and not exchanging property.

In addition, the IRS has ruled that a building without the underlying land is not “like kind” property to improved or unimproved land.

So, Lani, no you cannot defer gain recognition by having a building constructed on property you already own.

If you have questions about a like kind exchange, or any other tax question, ASK TERI, at TeriK@fctcpa.com

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