Like-Kind Exchanges Hold Tax Traps for the Unwary

Abstract

The Tax Cuts and Jobs Act (TCJA) generally provided a new 20% deduction for an individual’s ordinary income from certain pass-through trades and businesses in 2018 through 2025. The TCJA also reduced the availability of tax-free like-kind exchanges.

The interaction between like-kind exchanges and the new pass-through business income deduction creates some traps for the unwary. Deal timing is particularly important, because an exchange that straddles two taxable years may cause the taxpayer to lose some or all of the deduction for the first year.

Keywords: like-kind exchange, 1031, pass-through business income deduction, 199A, Puerto Rico, unadjusted basis