Exchange

Exchange means:
a provision under Section 1031 of the Internal Revenue Code, that like- kind property used in a trade or business or held as an investment can be exchanged tax-free. See also boot; realized gain; recognized gain; delayed (tax-free) exchange.

Example of Exchange:

Learn more about tax examples, explanations and calculations here.

Collins exchanges her farm, worth $100,000, but subject to a $20,000 mortgage, for Baker's condominium, worth $80,000. Even if there is realized gain to Collins on the exchange, the gain is not recognized to her. The tax on the gain is deferred through a basis carryover.