Will an Exchange of Two Properties Be Treated as Two Exchanges or One?

It is hardly uncommon for two properties to be sold at the same time. The properties may be located adjacent to each other and used to operate a single business, or a motel may be placed on one lot while the other lot is undeveloped land. For the purposes of this article, let’s consider two hypothetical properties: Whiteacre and Blackacre.

If an exchange of two lots is treated as two exchanges, many significant differences result in the tax treatment of the transactions. The differences can range from blowing a tax-free exchange to saving significant amounts of income taxes.