The Issue

When companies dispose of assets used in their trade or business, taxable gains can be recognized. This occurs due to the benefits of accelerated depreciation which allow companies to deduct depreciation benefits which may be in excess of the actual reduction in value of the asset that occurs over time. The tax benefit of the accelerated depreciation will reverse when the asset is sold because the accelerated depreciation is "recaptured" upon sale, potentially resulting in a substantial income tax liability.

The provisions of Internal Revenue Code (IRC) Section 1031 allow deferral of gain recognition when disposed assets are replaced with similar assets, and allow companies to avoid paying tax currently. However, the rules of IRC Section 1031 are complex and formula-driven, which has discouraged many companies from participating in Like Kind Exchanges for trade or business property.

Follow the links below for more information.

Taxable Gains on Asset Sales

When companies dispose of assets used in their trade or business, they often recognize taxable gains.  This can result in substantial federal tax liability.  More...
Challenges of Like Kind Exchange

The IRS rules for Like Kind Exchange are highly detailed and complex. As a result, administrative processes necessary to comply may be cumbersome and require substantial management effort and end-user involvement. More...
 
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