Starker Exchanges

As a real estate lawyer, I read your article “Exchange Avoids Tax When ‘Trading Up’ ” with a great deal of interest. Congress has also focused its attention on tax-deferred exchanges and new legislation is on the way.

The new legislation, if enacted, will become effective retroactively to July 10, 1989, and will make many of the conclusions in your article no longer valid. Your article states that virtually any real estate may qualify for an exchange, such as vacant land for a shopping center. The proposed law would require far greater similarity in the properties. For example, vacant land could no longer be traded for improved property.

The proposed legislation would also require that both the property to be exchanged and the new property to be acquired be held for one year in order to qualify for tax-deferred treatment under Section 1031 of the Internal Revenue Code.

Tax-deferred exchanges will remain an important tax planning vehicle for real estate investors. They will just be a little more difficult to accomplish and will be more restrictive in the future.

MICHAEL G. SMOOKE

Los Angeles