The Waterbury Democrat., 1943-02-27
YOUR INCOME
TAX
NO. ~
TRADES AND EXCHANGES
part ~

While certain trades or exchanges
Of property are considered ae nor
giving rise to gain, and consequent4
ly r1ontaxable, such transactions are
strictly limited In character. The
f1rst limitation Is that the property
exchanged must be solely for prop
erty" Of like kind"
The words like kind" have reEer@
ence to the nature or character Of
the property, and not to it, GRADE
or quality. Thus an exchange Of q
truck for q new truck, passenger
car for new passenger car, to be
used for q like business purpose
would be exchanges Of ''like kind
Likewise, trades Of q farm for city
property, or Of unimproved real
estate, or Of rental house for q
store building, are all classified 40
exchanges Of q like kind. Generally
speaking, the use to which the prcp~
critics are put 10 Q governing cons
sideration In determining whether
they are II like kind.
A second limitation on ilontaxabie
exchanges Is that the property exc
changed must have been "held for
productive use In trade or business
or for investment" and the exS
change must be made for property TO
be 50 held. This limitation excludes
various types Of transactions, espeS
cially trades Of property used or "a
be used for personal purposes. An
instance Is an exchange involving
residential property. Since ones
residence Is not considered as held
for use In trade or business or for
investment, trade Of ones resi-
dence for other property, or trade
Of other property for residenco
intended to be occupied by the, tax
payer, would constitute In effect q
sale Of the property disposed Of.
and gain realized on the exchange
would be reportable.
It should be noted also, In this
connection, that In the case OF .
residence exchanged for other prop
erty any gain realized would be
taxable, under the capital gains
provisions. but no loss would be ale
lowable, since losses are not allowed
to be taken on personal residence
property disposed Of. II, however,
q business property were exchanged
for q residence. the resultant gain
or loss would be reportable.
The third limitation on nontax-
able exchanges Is that the exchanges
must be even. that is, no boot in
volved. II boot Is taken, then q gain
arises. the amount Of which. up to
the amount Of the boot, would be
taxable. The amount Of gain be-
You'd the amount OF the boot would
be nontaxable. If boot Is given,
since this Is regarded simply as Ed-
ditional investment In property Of
the kind exchanged.
The fourth limitation on foil.t tax.
able exchanges excludes transactions
In stocks and bonds and other se-
curities, as well as exchanges Of
property held as stock in trade or.
primarily for sale. However, In the
case Of investment securities held.
an exchange may be nontaxab.e IL
the securities exchanged are OF the
same corporation and Of the same
degree Of equity common stock for
common stock, preferred stock for
preferred stock. etc.. Also. In the
case Of reorganizationS, an exchange
Of securities Is nontaxable II the exc
change Is made pursuant to q plan
Of reorganization, and stock or se-
cuftties In q corporation Q party ia
the reorganization are exchanged
solely for stock or securities In such
corporation or another corporation q
party 10 the reorganization.