Why does this tax law make any sense?

[Craig234]

Say you have a rental house and sell it. Then the profit is a taxable capital gain that year. OK.

But what if you trade it for another similar property? The IRS creates something called a 'like-kind exchange' and says, 'well, ok, then you can not pay taxes now, and wait until you sell the new property'.

And what if instead of just trading you say 'well, I'm going to sell mine and immediately buy another similar property, isn't that close enough to a trade?' And they say 'no. They're two different events. Pay taxes.'

OK. Now here's where its weird.

There's something called a 'like-exchange company' whose business is to charge you perhaps $750, and to make the sale and purchase a 'like exchange', and then the IRS says, 'oh, sure, no problem'.

There are rules - you have 45 days after the sale to find the new property and 180 days to complete the purchase - but it then qualifies as a 'like kind exchange' if this company was used to make it one.

Why does this make sense?

If such a deal is going to be allowed to defer the taxable event, why not just let a buyer buy the other property and do it, why have a 'like kind exchange company' involved and pay a fee?

 

[lxskllr]

More government games. You expect it to make sense? The notable event is when the government does something that /isn't/ retarded.

 

[Craig234]

More government games. You expect it to make sense? The notable event is when the government does something that /isn't/ retarded.

Really not looking for the sort of generic 'hey why should the IRS make sense' type post. Considered saying that in the OP.

 

[Carson Dyle]

I think you're mistaken in your understanding of the law. It's fairly well explained here in very simple terms. Perhaps that 'like-exchange company' that you talk about is merely a business that helps you find an investment that qualifies, rather than being required.

https://en.wikipedia.org/wiki/Like-kind_exchange

It's a tax break.

 

[Red Squirrel]

Taxes arn't suppose to make sense, they make it as complicated as possible in hopes you or your accountant make a mistake so they can go back 10 years and fine you.

Some of it is just because of greed. Like if you sell a used car you have to pay taxes on it. Taxes were already paid on it when it was first bought! They don't care. Every time it's sold, it has to have taxes paid on it again and again. A single car can end up generating more income than the entire price of the car when it was new. It's retarded.

Or just look at crypto. They want to tax even that now. Every little thing they can think of they find a way to tax it. They want to start taxing Paypal transactions too now I think. Never heard anything concise but the CRA demanded they hand over all transaction history at one point, so I imagine it's because they want to look at taxing it's use.

More than half the money you make ends up being taxed in some way or the other.

 

[s0me0nesmind1]

Taxes arn't suppose to make sense, they make it as complicated as possible in hopes you or your accountant make a mistake so they can go back 10 years and fine you.

Some of it is just because of greed. Like if you sell a used car you have to pay taxes on it. Taxes were already paid on it when it was first bought! They don't care. Every time it's sold, it has to have taxes paid on it again and again. A single car can end up generating more income than the entire price of the car when it was new. It's retarded.

Or just look at crypto. They want to tax even that now. Every little thing they can think of they find a way to tax it. They want to start taxing Paypal transactions too now I think. Never heard anything concise but the CRA demanded they hand over all transaction history at one point, so I imagine it's because they want to look at taxing it's use.

More than half the money you make ends up being taxed in some way or the other.

I think you're delving in too deep. I think part of the complexities of taxation are two-fold

#1 - People lobbying to input rules that benefit themselves - often complex
#2 - People such as myself (accountants, tax consultants - rather) that are essentially a carved out niche job-market. Plenty of revenue and tax is generated just based upon people like myself being employed.

Also it's pretty well known - Anytime you make Income you are expected to pay income taxes on it in the US. The fact that is cypto, etc... is irrelevant. The only exceptions are the exceptions that they list. So let me be more clear: If you make money off of doing illegal drug dealing - you are expected to report your income on it, even though the income you gained from it is illegal by law. Yes, it's a catch-22, but it is what it. you can't blame them for making a statement such as "You owe taxes on any income" when HOW you get income is constantly changing.

 

[Ns1]

I think you're mistaken in your understanding of the law. It's fairly well explained here in very simple terms. Perhaps that 'like-exchange company' that you talk about is merely a business that helps you find an investment that qualifies, rather than being required.

https://en.wikipedia.org/wiki/Like-kind_exchange

It's a tax break.

I'm only here to back up the OP - my relatives did it this year, bought a property to replace a different property, needed some company in the middle to facilitate the like kind exchange.

I believe we're talking about...

https://www.thebalance.com/how-a-qualified-intermediary-faciliates-a-1031-exchange-1798718