We are now embarking on a short tale about the concept of like kind exchanges. The Tax Code permits the tax free exchange of property of like kind so long as no cash or non-like kind property changes hands. We will start with the easy tale of the pure unvarnished like kind exchange and move to tales involving more complex portions of the law.
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Cedric bought a condo for rental in 1990 for $200,000. As required by law, he took depreciation (whether he wanted to or not) from 1990-2009 in the amount of $125,000. In 2009, out of the blue he was offered $500,000 for the condo. He consulted his accountant, Frank Dinero.

“Cedric, you’ve got a gain of $425,000 which means that your state and federal taxes on the sale will be $85,000.” Cedric left saddened and went to Tough Times Bar to drown his sorrows. As he was having his fifth beer, a biker sat down beside him. “You look low man”, the biker said. “Yeah, I guess I shouldn’t be upset, but I learned that in selling a condo I bought for investment that I’m going to owe a lot of taxes”. The biker frowned for a second and said, “what are you going to do with the money?” That question caught Cedric a bit off guard and caused him to be suspicious. “Why are you askin?” Cedric responded. “Whoa man, just thought if you was going to invest in other real estate you could defer some taxes”, the biker said raising his open hands. “What?” Cedric replied.

“I was sellin my garage to another dude because I needed a bigger one for my custom bike business. My lawyer put me onto this trick called a Like Kind Exchange. And I rolled all my gain into my new building and paid zero taxes.” “Really?” Cedric asked. “I’m not shittin’ ya man?” said the Biker. “Thanks”, Cedric said, “what are you drinking, I’m buying”, Cedric continued, “Bartender give this guy whatever he wants to drink”.

The next day Cedric called his lawyer, “Have you ever heard of a like kind exchange?” “Yeah, but you should talk to a tax lawyer about that, one of my partners here a Mr. Ito Brassballs can help you.” Cedric made an appointment with Ito.