Final answer:
Property involved in a like-kind exchange can include real estate, equipment, or intangible assets like patents. Taxpayer can defer capital gains tax by exchanging properties of similar kind and nature. Specific rules and requirements must be followed for a like-kind exchange.
Step-by-step explanation:
In a like-kind exchange, property is exchanged for another property of similar kind or nature. This allows the taxpayer to defer capital gains tax on the exchange. The property involved in a like-kind exchange can include real estate, equipment, or even intangible assets like patents or copyrights.
For example, let's say you own a rental property and want to exchange it for another rental property. As long as both properties are used for investment purposes and are of similar value, this could qualify as a like-kind exchange. By doing so, you can defer paying capital gains tax on the sale of the property.
It's important to note that there are specific rules and requirements for a like-kind exchange, including identifying a replacement property within a certain timeframe and completing the exchange within a set deadline. Consulting with a tax professional or seeking legal advice is recommended to ensure compliance with the necessary regulations.