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Quick Analysis of an Exchange

Analyzing exchanges can be easier than you think! Consider the following three pieces of information:

  • Fair market value of the property given and received
  • Existing mortgages
  • The equity given vs. equity received

For an exchange to be 100% TAX-DEFERRED, make sure the following are true:

  • The taxpayer traded even or up in value.
  • The taxpayer traded even or up in equity.*
  • The taxpayer transferred no other property.

* Equity is the difference between the FMV and the existing mortgage on the property.

“ Example:  Taxpayer exchanged a rental with a FMV of $100,000 and a loan of $50,000 for another rental with a FMV of $125,000 and a mortgage of $25,000.  Is it 100% tax-free? YES!  The taxpayer traded up in value from $100,000 to $125,000.  He also traded up in equity, from $50,000 to $100,000 and transferred no other property. ”

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