George, age 68, decides to retire from farming and is considering selling his farm. The farm has a $100,000 basis and a $400,000 FMV. George’s two sons are not interested in farming. Both sons have large families and would like to own houses suitable for their needs. The Iowa Corporation is willing to purchase George’s farm. George’s tax advisor suggests that Iowa Corporation should buy the two houses the sons want to own for $400,000 and then exchange the houses for George’s farm. After the exchange, George could make a gift of the houses to the sons.
a. If the transactions are executed as suggested by the tax advisor, George’s recognized gain will be $300,000. Explain why the transaction does not qualify as a like-kind exchange.
b. George wants the exchange to qualify as a like-kind exchange and still help his sons obtain the houses. What advice do you have for him?
A partial list of research sources is:
• Dollie H. Click, 78 T.C. 225 (1982)
• Fred S. Wagensen, 74 T.C. 653 (1980)