Legal Definitions - like-kind exchange

A like-kind exchange is when someone trades one piece of property for another piece of property that is of the same kind, class, or character. This type of exchange is not taxed unless the person receives cash or other property in addition to the exchange.

For example, if a farmer trades a tractor for another tractor, that would be a like-kind exchange. However, if the farmer traded the tractor for a car and some cash, that would not be a like-kind exchange and would be subject to taxes.

Another example would be if a business owner traded a building they owned for another building. As long as no cash or other property was exchanged, it would be considered a like-kind exchange and not taxed.