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Like-kind exchange tax assumptions: Treatment follows IRS notice 2000-4

When setting up a replacement asset for a like-kind exchange, the application determines if the replacement asset is a MACRS or a non-MACRS asset.
The application makes this determination on a treatment-by-treatment basis. Note that the determination differs depending on whether or not the treatment follows IRS Notice 2000-4 or Reg. 1.168(i)-6.
You can specify whether or not each treatment follows IRS Notice 2000-4 or Reg. 1.168(i)-6 in Setup, Treatments, Treatment Options.
If the treatment follows IRS Notice 2000-4, the replacement asset is determined in the following ways.
  • If after 1/1/87 you exchange an asset with a treatment that is depreciating using the MACRS, ACRS, Straight-line, 125% DB, 150% DB, or 200% DB method, the application assumes that you are acquiring a MACRS asset for the treatment.
  • If, at any time, you exchange an asset with a treatment that is depreciating using the Years Digits, Amortization, Units of Production, Memo, Land, or user-defined method, the application assumes that you are acquiring a non-MACRS asset for the treatment. The application sets up the treatment for the replacement asset with the same method of depreciation as the original asset.
Because IRS Notice 2000-4 applies only to MACRS replacement assets, the application sets up MACRS replacement assets for treatments that follow the Notice as aggregate assets that are comprised of component assets.
A component asset is set up for the following items.
  • The original asset.
  • Any components for the aggregate if you are exchanging an aggregate asset.
  • The amount of boot given for the exchange.
See an illustration of a like-kind exchange in which an aggregate asset is created according to Notice 2000-4. For the like-kind exchange of an aggregate asset or for a mass trade, each treatment must calculate using either a MACRS or a non-MACRS method of depreciation throughout each component so that the application can set up the aggregate asset correctly. For example, in a mass trade you should not trade together an asset with a Tax treatment that depreciates using the MACRS method and an asset with a Tax treatment that depreciates using the Units of Production method.
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