Like-kind exchanges - common problems and solutions

Clients selling real estate and engaging in Sec. 1031 tax-free exchanges often rely on professional exchange companies to draft documents, advise on tax and legal issues and close the transaction. Professional exchange companies, in turn, attempt to limit their liability with document language stating that the exchanging property owner "does not rely on the professional exchange company for legal or tax advice." However, without proper tax advice, clients can make mistakes in structuring exchanges, resulting in taxable income. Exchanges of real estate often involve personal property issues; clients should be advised of planning strategies involving improvements to the replacement property. Like-kind exchanges involving partners and partnerships often create potential obstacles to gain deferral; tax advisers and clients should carefully consider solutions and planning. Clients engaging in like-kind exchanges should become familiar with the identification and replacement period requirements and know how to maximize them.