What is the tax treatment of a like-kind exchange that involves more than two parties? If the transactions involved are carefully structured to meet the like-kind exchange requirements, you should be able to defer all or part of the tax on your gain on the exchanged property.

The typical multi-party exchange arises when one party (let’s call her Alice) who owns Whiteacre, seeks to exchange it for Blackacre, owned by Carol. Carol, however, wants to sell Blackacre rather than exchange it for other realty. A third party, Bob, wants to buy Whiteacre, but if Alice simply sells it to him, she’ll have to recognize her gain on the sale. The transaction can be arranged as follows:

Bob buys Blackacre from Carol. Bob then exchanges it with Alice for Whiteacre. Alice should not have to recognize any gain on the sale under the like-kind exchange rules. If Whiteacre is worth more than Blackacre, Bob will have to pay extra consideration in the exchange. If the extra consideration is cash (or other non-like- kind property), Alice will have to recognize her gain up to the amount of extra consideration received. Please let me know if you would like more information on how the like-kind exchange rules work in general.

Alternatively, Alice could have first directly exchanged Whiteacre for Blackacre with Carol. Carol could then sell Whiteacre to Bob. Again, Alice would be able to avoid tax on her gain on Whiteacre under the like-kind exchange rules.

The important conclusion to draw from the above example is that you may be able to accomplish a like-kind exchange without having to find an owner of property willing to trade with you directly. If you can more simply find (1) a buyer for your property and (2) property for sale that you seek to acquire, you should be able to structure a like- kind exchange as the parties in the above examples did.