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Deemed Exchange

A deemed exchange refers to a transaction that is treated as a tax-deferred exchange under Section 1031 of the Internal Revenue Code, even though there is not a simultaneous exchange of properties between the parties involved.

In a deemed exchange, the taxpayer may sell their relinquished property to a buyer and then subsequently identify and acquire replacement property from a different seller within the specified time frame. This transaction is treated as an exchange, even though the taxpayer did not directly exchange properties with the buyer of the relinquished property.

To qualify as a deemed exchange, the transaction must meet certain requirements, such as adhering to the identification and exchange period timelines and using a qualified intermediary to facilitate the exchange. By completing a deemed exchange, the taxpayer may defer capital gains taxes that would otherwise be due upon the sale of the relinquished property.