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Depreciation

Like-kind exchange examples

The following examples outline the data entry steps for like-kind exchanges in UltraTax CS and in Fixed Assets CS.

Example 1

You used a building in your business that was purchased for $90,000. $10,000 depreciation has been deducted on the building. You sold the building for $40,000 and received a property in exchange with a FMV of $20,000. They buyer assumed real estate taxes of $3,000 and a mortgage of $17,000 on the building. The selling expenses were $4,000.
Data entry
  • The $100,000 the building was sold for will go in the Cash received field.
  • The $10,000 of depreciation is taken into account and included in the calculation of the Adjusted basis of original asset field.
  • The real estate taxes ($3,000) and mortgage ($17,000) the buyer assumed should be totaled and entered in the Liabilities (including mortgage) given up field.
  • The $4,000 of selling expenses go in the Exchanges expenses incurred field.
  • The FMV ($20,000) of the property received goes in the FMV of like-kind property received field.
These amounts are used to calculate the Total amount realized. The adjusted basis will be subtracted from the total amount realized to calculate the Gain realized.
The net book value (NBV) won't be used. This is the original basis of the asset calculated with depreciation allowed or allowable. Depreciation allowed is the total depreciation of the asset. Depreciation allowable is either the depreciation allowed if the asset was 100 percent business use, or the prior depreciation calculated by Fixed Assets CS plus the current depreciation. (To view the calculated amount of prior depreciation for the current asset, select
Tasks
 then
Prior Depreciation Comparison
). This can cause NBV and adjusted basis of the original asset to be different.

Example 2

Party A owns an apartment with a FMV of $220,000, an adjusted basis of $100,000, and has a $80,000 mortgage. Party B owns an apartment with a FMV of $250,000, an adjusted basis of $175,000, and has a mortgage of $150,000.
Party A transfers their apartment to Party B in exchange for Party B's building plus $40,000 cash. Party A assumes the mortgage ($150,000) from Party B's property, and Party B assumes the mortgage ($80,000) from Party A's apartment.
Data entry for Party A
  • Enter the $40,000 in the
    Cash received
     field.
  • Enter the value of the apartment received ($250,000) in the
    FMV of like-kind property received
     field.
  • You can either enter $70,000 in the
    Liabilities assumed
     field (net of $150,000 assumed and $80,000 given up), OR enter $150,000 in the
    Liabilities assumed
     field and $80,000 in the
    Liabilities given up
     field.
Data entry for Party B
  • Enter $40,000 in the
    Cash paid
     field.
  • Enter the value of the apartment received ($220,000) in the
    FMV of like-kind property received
     field.
  • You can either enter $150,000 in the
    Liabilities given up
     field and $80,000 in the
    Liabilities assumed
     field, OR enter $70,000 (the net of the $150,000 liabilities given up and $80,000 liabilities assumed) in the
    Liabilities given up
     field.

Example 3

Party A traded a building with an adjusted basis of $112,500 and $20,000 cash to Party B in exchange for a property with a FMV of $130,000. Party B decides they need more from Party A because they think the value of their property will rise. Party A then adds to the trade a vacant lot they purchased for $10,000 with a FMV of $5,000.
Data entry
  • Enter the $10,000 Party A paid for the vacant lot in the
    Adj basis of other property given up
     field. This is used on Form 8824.
  • Enter the FMV of the vacant lot given up in the
    FMV of other property given up
     field. This is used in the gain realized calculation.
  • The $20,000 cash paid goes in the
    Cash paid
     field.
  • The FMV ($130,000) of the property received is entered in the
    FMV of like-kind property received
     field.

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