What is a tax deferred or tax free exchange?

Certain exchanges allow investors or property owners to trade one piece of property for another without paying income tax on the transaction. If you sell a piece of business or investment property for cash, you may owe tax on the transaction. However, if certain rules are followed, the property can be exchanged for "like-kind" property and the tax consequences of the sale will be postponed. This means all of your money will remain invested in the property and none of it will be paid in tax to the IRS.