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Can I exchange the shares of an index ETF for the assets of a small business?

Personal Finance & Money Asked by R.G. on March 9, 2021

I am interested in buying a small business for $150K. In order to finance the acquisition, I plan to use funds from my personal brokerage account (TD Ameritrade). I will sell $150K in stocks from the brokerage account then use the cash proceeds to purchase the assets of the target business. This will result in my having to pay capital gains tax on the stock sale. Instead, is it possible for me to exchange my stocks for the assets of the target business and thus avoid paying capital gains tax? If this is possible how is it typically structured and does it offer any tax advantages to the seller? The stocks in question are S&P 500 and DJIA index ETFs.

2 Answers

Barter is considered revenue and is therefore deemed a form of income by the IRS and must be reported as taxable income. The fair value must be estimated though in the case of securities, it's fully known.

Parties that barter must issue and exchange a Form 1099-B and a copy must be filed with the IRS.

Correct answer by Bob Baerker on March 9, 2021

A capital-gains deferring exchange is allowed in real estate (1031 exchange) but not in stocks.

Answered by Orange Coast- reinstate Monica on March 9, 2021

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