A multi-party exchange, also known as a three-party exchange or a Starker exchange, is a type of like-kind exchange where three or more parties are involved in the transaction. In a typical multi-party exchange, one party wants to exchange their property for another property, but the owner of the desired property does not want to directly exchange it. Instead, a third-party step in to facilitate the exchange by acquiring the desired property and exchanging it with the party who wants it.
Here’s an example to illustrate a multi-party exchange:
Party A owns Property X and wants to exchange it for Property Y, which is owned by Party B. However, Party B does not want to directly exchange Property Y for Property X. Party C, a third party, is interested in acquiring Property X. To facilitate the exchange, Party C agrees to purchase Property Y from Party B and then exchange it with Party A for Property X.
In this multi-party exchange, Party A achieves their goal of exchanging Property X for Property Y, even though Party B does not want to directly participate in the exchange. Party C acts as an intermediary, acquiring Property Y from Party B and exchanging it with Party A for Property X.
The key takeaway from this example is that a like-kind exchange can be accomplished without finding a direct party willing to exchange properties with you. Instead, you can find a buyer for your property and identify a property for sale that you wish to acquire. By structuring the transactions appropriately, you can still qualify for a like-kind exchange.
It’s important to note that these examples are simplified and may not cover all the specific details and requirements of a like-kind exchange. Consulting with a tax professional or attorney is recommended to ensure compliance with the like-kind exchange rules and to address any specific circumstances or complexities in your situation.