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Depreciation

Dispose of a section 1245 asset as a like-kind exchange

With the TCJA tax law changes, like-kind exchanges (LKE) are no longer applicable for section 1245 property after 12/31/17. For Book purposes and for clients with state treatments of CA with a disposal date before 1/11/19, AR, IA, IN, MA, or NH for tax years beginning 2018 and later, those clients will be able to dispose section 1245 assets as a like-kind exchange.
For 1040 CA clients with less than $250,000 for a single filer or $500,000 for a joint filer with a disposal date after 1/10/19 to follow 1031 Pre TCJA you need to go to Setup and then Treatment options for the CA treatment and mark the
Follows 1031 Pre TCJA after 1/10/19 – Less than 250,00/500,000
 option.
note
If more states decouple from TCJA, we’ll release a CS Connect update to allow the state to dispose of a section 1245 asset as a like-kind exchange.
To dispose of a section 1245 asset as a like-kind exchange for Book or state purposes for tax years beginning in 2018, you first need to have either the Book treatment set up to follow 1031 Pre TCJA or have an applicable state treatment calculating on the asset.
Follow these steps to set up the Book treatment to follow 1031 Pre TCJA.
  1. Go to
    Setup
    , then
    Treatments
    .
  2. Mark the checkbox for the Book treatment.
  3. With the Book treatment highlighted, select
    Options
    .
  4. Mark the checkbox
    Follows 1031 Pre TCJA.
Follow these steps to dispose of a section 1245 asset as sold/scrapped for tax purposes and like-kind exchange for Book/state purposes.
  1. Open the client and, if necessary, select an activity folder.
  2. Select the asset you want to dispose of and choose the
    Modify
     button.
  3. In the
    Asset Detail
     dialog, select the
    Disposal
     tab.
  4. Select
    Sold/Scrapped
     as the disposal method.
  5. Enter the disposal date.
  6. Mark the
    Personal property exchange
     checkbox.
  7. Select the State/Other LKE Information button to complete the data entry for the like-kind exchange, then select
    OK
     to close the dialog.
    note
    This screen will automatically open when you have the Follows 1031 Pre TCJA option selected or when a non-conforming state is added as a treatment.
  8. Enter the disposal information for tax purposes on the
    Disposal
     tab.
  9. Enter a description of the asset in the
    Replacement for tax
     checkbox (unless you want to use the default name).
  10. Enter the Federal tax cost basis that should be used when the new asset is created.
Fixed Assets CS will create a new asset using the date disposed as the date in service for the new asset and calculate the cost basis for the applicable Book or state treatments based off of the like-kind exchange information.
note
You can't mass dispose of section 1245 assets using Sold/Scrapped for federal purposes and like-kind exchange for Book or state treatment purposes.

This article applies to:

  • Product: UltraTax CS
  • Return type: 1040 Individual,1120 Corporation,1065 Partnership,1041 Fiduciary,990 Exempt Organization
  • Subject: Depreciation

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