The potentially large amount of taxes due on sale of commercial property has caused investors and policy makers to seek ways to defer taxes on the disposition of a property. A popular option has become for investors to swap one eligible property for another in order to avoid or defer capital gains taxes. Which of the following methods for deferring taxes does this describe?

A. Installment sale.

B. Fully-taxable sale.

C. Like-kind exchange.

D. Sale leaseback.

C. Like-kind exchange

Explanation:

Like-kind exchange is also called 1031 exchange. It is a United Sates tax law. It is a tax deferred transaction which permits the transference of an assets as well as the purchase of another asset that is similar to it without having to generate capital gain tax liability from selling the first asset.

For a real estate property to be qualified for a like-kind exchange, such property must be put to use either in trade, investment or business, the property being sold must not be a personal residence, it must be an investment property, and the one being purchased must be similar to the one that was sold.

C. Like-Kind exchange

Explanation:

Like kind exchange is a type of deferred tax transactions that occurs when the disposal of an asset and the acquisition of another similar asset without generating a capital gains tax liability from the sale of the first asset. In like kind exchange, an individual can defer paying taxes upon the sale of a property by swapping your property for similar property owned by someone else. An investor is able to swap one eligible property for the other with the sole aim of avoiding or deferring taxes.