Deferral rules related to like-kind exchanges apply to both gains and losses, but only when the transaction meets the specific requirements of a like-kind exchange.

Given those requirements, in practice we see that like-kind exchange treatment effectively becomes an election - i.e., the taxpayer intentionally ensures the transaction qualifies as a like-kind exchange when they want deferral and the taxpayer intentionally ensures the transaction does not qualify as a like-kind exchange when they do not want deferral.

Knowing that, which of the following (1, 2, or 3) would you expect to be true about real-life like-kind exchanges? Briefly explain your reasoning.

1. Most real-life like-kind exchanges involve a deferred gain,
2. Most real-life like-kind exchanges involve a deferred loss, or
3. Real-life like-kind exchanges are probably close to a 50/50 split - about half involve deferred gain and about half involve deferred loss