What are the differences and similarities between like-kind exchanges and involuntary conversions? How are eac

Question

What are the differences and similarities between like-kind exchanges and involuntary conversions? How are each calculated?

Answer 1

About the only similarity is that they both involve disposal of property. Maybe a couple of quick examples would explain them.

Involuntary conversion: Your house burns to the ground. You take the insurance money and don't build another one. It's treated as if you sold your home. Whether or not any taxes would be due depend upon the timelines involved.

Like kind exchange: You live in Missouri. You own a rental property. You're retiring to Florida and don't want to give up the rental but don't want to be a long-distance landlord either. You exchage your Missouri rental for one of the same value in Florida. You will defer taxation on the disposal of the Missouri property until you sell the one in Florida. The person you exchange with will also defer their gain until they sell the property in Missouri.

This is a bit of an over simplification but should help clarify things a bit.

Answer 2

Wow, what a question.

The similarities are few and far between.

There isn't enough space here to explain how they are calculated...and besides I get paid to explain that.

But the short version is a like-kind exchange is generally taxed on other compensation. Where a involuntary conversion is generally taxed just as if it was a ordinary sale.

Answer 3

angel_rat, it sure sounds like you are looking for people to do your homework, with the series of questions you posted. You could always try doing your own homework - you might learn more from the class.