Executive Summary
Many companies have been able to reduce their tax liability over the past few years by taking advantage of Bonus Depreciation. However, the benefits of Bonus Depreciation will ultimately reverse through higher tax gains on the disposition of your assets. Through the implementation of a Like Kind Exchange (LKE) program, it is possible to defer the recognition of that gain as long as you continue to replace disposed assets.

With recent IRS guidance and advances in technology, many leaders in the rental and leasing industry as well as other businesses have started using this strategy to provide competitive advantages including:

  • Significantly lower borrowing costs/interest expense by funding new purchases with the full proceeds from dispositions vs.the tax reduced proceeds without LKE.
  • Deferred tax payments on the sale of business assets for as long as you continue to replace those assets which (usually for as long as you remain in business) which provide significantantly enhanced cash flows and time value (NPV) benefits.

The tax law behind Like Kind Exchange was introduced in the 1936 Tax Code but has historically been utilized mostly for real estate transactions or large ticket items such as aircraft. Generally, Like Kind Exchange has not been used for business assets because of the need to route funds to a Qualified Intermediary (QI) and prohibitive administrative costs. PwC has introduced Internet technology that can automate an LKE program for business assets with minimal impact to operations and no changes to your purchasing or remarketing process. In addition, the technology has significantly reduced the administrative costs and fees associated with the QI.

An LKE program provides the opportunity to finance new property with tax savings. Accordingly, an LKE program can increase the overall profitability of companies that routinely sell assets used in the course of business.

PricewaterhouseCoopers is a leader in providing LKE services to a broad range of companies, and offers a comprehensive approach that addresses the tax compliance, technology and operational issues inherent in establishing an LKE program.

PwC has a dedicated team of more than 50 tax and technology professionals whose main focus is the delivery of Like Kind Exchange services to our clients. We would be happy to provide you with additional information about LKE. We can be reached by calling the PwC LKE Information Line at 1-877-479-2882 or via e-mail at tsg.help@us.pwc.com.

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