Will barter or exchange of property avoid capital gains tax obligation in the US?

The answer is yes for most owner occupied homes if occupied by the owner for two out of any last five years. Capital gains tax cannot be avoided when selling investment properties, however. When swapping an investment property both parties can defer paying the tax through a 1031 exchange. Keep in mind deferring the tax only makes sense when one can anticipate property value appreciation. Sellers are generally better off paying the taxes during the tax year of the sale when property values are declining.

Both parties in a swap transaction can reasonably lower their exchange property values in order to diminish profit subject to capital gains tax. As most investors are probably aware, there is no set price for any house. Even ordering several appraiser reports would most likely yield several different appraised values. These values will fluctuate even more in cases with abnormal properties, i.e. historical value property, a one of a kind odd shaped structure, etc. Ordering several appraisal reports and taking the lowest value as basis for your exchange basis would especially make sense in questionable value scenarios. The bottom line is that on top of all other advantages bartering property offers flexibility in lowering your tax obligation.
 

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