Final answer:
Exchanging unimproved land for an apartment building may qualify for a like-kind exchange for tax purposes if both properties are used in a trade or business or for investment. If not, the exchange does not qualify for tax deferral. This is also tied to urban renewal efforts where land use optimization is crucial for revitalization.
Step-by-step explanation:
When a parcel of land is exchanged for an apartment building, various factors must be considered to determine if this exchange will qualify for special tax treatment such as a like-kind exchange under Section 1031 of the Internal Revenue Code. Generally, real property can be exchanged for other real property of like-kind, whether improved or unimproved, as long as it is held for use in a trade or business or for investment purposes, and not primarily for resale or personal use.
In the context of urban renewal, exchanging unimproved land for an apartment building could qualify if both properties are used in a trade or business or held for investment. This would allow for the potential deferral of capital gains taxes. However, if the exchange doesn't meet the criteria set forth by tax laws, namely that both properties are not held for proper use, it doesn't qualify for favorable tax treatment and capital gains taxes may be due upon the exchange.
This exchange reflects not only a possible tax scenario but also the effects of urban renewal, where decisions must be made regarding the optimal use of land. Redevelopment efforts may aim to convert unimproved land into structures that could revitalize a community, as suggested by past urban renewal practices.