What are the requirements for deferring tax on a capital gain?
In order to defer all of the tax on the sale of investment property, first make sure that the relinquished and replacement properties are like kind and held for productive use in a trade or business or for investment. Second, make sure that the timelines for the exchange are met. Third, make sure that all of the proceeds generated by the sale of the relinquished property are used in the purchase of the replacement property and that the FMV (fair market value) of the replacement property is equal to or greater than sale price of the relinquished property. If any of the first two requirements listed are not met, no exchange is possible. If any of the third requirement is not met, a taxpayer may be able to partially defer their gain but not wholly.
