3.9.  DPPs and the Like-Kind Exchange

A like-kind exchange is a tax-deferred transaction that allows an owner of real property to sell the asset and acquire another asset without incurring a capital gains liability on the sale. The owner may be an individual or partnership, such as a DPP. Like-kind exchanges come with some strict requirements. Individuals can only replace their property with another of equal or greater value. Sellers who wish to exchange into a replacement property with multiple owners can only receive the tax benefits if the replacement property is owned as an investment contract or a grantor trust. The replacement property cannot be a partnership or LLC.

Also known as a 1031 exchange, the like-kind exchange derives from Internal Revenue Code (IRC) Section 1031, which exempts an investor from paying taxes on a gain, if the sale proceeds are reinvested in a similar property of equal or greater value. To qualify for the tax benefit, the seller must identify the qualified property to be acquired within 45 days and acquire it within 180 days of the sale. In addition to the tax deferral benefits, the excha