Understand Like-Kind Exchange Programs (LKE Program)

Like-Kind Exchange Program

A Like-Kind Exchange Program (LKE Program) is designed to benefit companies that engage in high-volume asset exchanges of 100 or more properties a year (equipment, fleet cars or laptop computers, etc.). Unlike a traditional single exchange, the LKE Program creates a cost effective method to exchange hundreds or thousands of assets in a comprehensive streamlined process. It also provides additional flexibility with property identification and the handling of exchange funds.

Here’s a quick summary of how the LKE Program works. Equity Advantage drafts a master exchange agreement geared to your company. The agreement provides that your company will assign its rights to sell relinquished property and rights to purchase replacement property to Equity Advantage. The buyer or seller receives written notice of the assignment of rights. A joint bank account between your company and Equity Advantage for the sale proceeds and the purchases is established.

After the LKE Program is created, the 1031 exchanges proceed forward as usual with two additional benefits. The first benefit pertains to the 45-day identification rule. A traditional exchange has the Exchangor identifying replacement property within 45 days after the relinquished property is transferred. This requirement allows the IRS to determine that a particular replacement property corresponds to a particular relinquished property. With a LKE Program, the 45-day identification period is not as strict. So long as the replacement property is acquired or properly identified within 45 days after the relinquished property is transferred, the Exchangor may match a particular replacement with a particular relinquished property at any time prior to the due date of the taxpayer's tax return (tax extensions are considered for the due date.)

The second benefit pertains to the Exchangor’s access to funds or property. A traditional 1031 Exchange fails when the Exchangor receives or constructively receives funds or property for the relinquished property prior to the Exchangor acquiring replacement property. The LKE Program does not face such severe restrictions. There is some flexibility with the Exchangor receiving funds or property prior to the acquisition of replacement property. With certain limitations, the Exchangor may receive checks, have access to a joint bank account where exchange proceeds are deposited, net amounts owed to purchaser against Exchangor’s sale price for the relinquished property (or vice versa in respect to netting against replacement property) and loan money to the purchaser of the relinquished property.

Equity Advantage has the capability to develop a LKE Program specific to your company’s exchange needs. Your company benefits from this program by significantly lowering your taxes, increasing your cash flow, reducing costly paperwork and ultimately increasing your long-term profits. This can all be accomplished without significantly altering your current business approach for transferring assets.

Do you Qualify? Answer some basic questions to determine whether an exchange is right for you and your current situation.

"WASHINGTON STATE LAW, RCW 19.310.040, REQUIRES AN EXCHANGE FACILITATOR TO EITHER MAINTAIN A FIDELITY BOND IN AN AMOUNT OF NOT LESS THAN ONE MILLION DOLLARS THAT PROTECTS CLIENTS AGAINST LOSSES CAUSED BY CRIMINAL ACTS OF THE EXCHANGE FACILITATOR, OR HOLD ALL CLIENT FUNDS IN A QUALIFIED ESCROW ACCOUNT OR QUALIFIED TRUST." RCW 19.310.040(1)(b) (as amended)