- A similar exchange is used when someone wants to sell an asset and acquire a similar one, while avoiding capital gains tax.
- Such exchanges are strictly controlled by the IRS and require accurate reporting to ensure that there are no tax penalties.
- Savvy sellers can use a similar exchange to defer other specific profits such as depreciation.
- Taxes on equal exchange are deferred, not cancelled.
- A similar exchange allows the seller to delay the return of depreciation.