Depreciation: Like-Kind exchange examples
The following examples outline the data entry steps for like-kind exchanges in UltraTax CS and Fixed Assets CS.
Example 1
You used a building in your business that cost you $90,000. $10,000 depreciation has been deducted on the building. You sold the building for $40,000 and received a property with an 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 theCash receivedfield.
- The $10,000 of depreciation is taken into account and included in the calculation of theAdjusted basis of original assetfield.
- The real estate taxes ($3,000) and mortgage ($17,000) the buyer assumed should be totaled and entered into theLiabilities (including mortgage) given upfield.
- The $4,000 of selling expenses go into theExchanges expenses incurredfield.
- The FMV ($20,000) of the property received will go into theFMV of like-kind property receivedfield.
These figures will 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 the NBV and the adjusted basis of the original asset to be different.Example 2
Party A owns an apartment with an FMV of $220,000, and adjusted basis of $100,000, and has a $80,000 mortgage. Party B owns an apartment with an FMV of $250,000, an adjusted basis of $175,000, and has a mortgage of $150,000.
Party A transfers their apartment 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 theCash receivedfield.
- Enter the value of the apartment received ($250,000) in theFMV of like-kind property receivedfield.
- You can either enter $70,000 in theLiabilities assumedfield (net of $150,000 assumed and $80,000 given up) OR enter $150,000 in theLiabilities assumedfield and $80,000 in theLiabilities given upfield.
Data entry for Party B
- Enter $40,000 in theCash paidfield.
- Enter the value of the apartment received ($220,000) in theFMV of like-kind property receivedfield.
- Enter $150,000 in theLiabilities given upfield and $80,000 in theLiabilities assumedfield OR $70,000 (the net of the $150,000 liabilities given up and $80,000 liabilities assumed) in theLiabilities given upfield.
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 an FMV of $130,000. Party B decides they’ll need a little more as they think the value of their property will rise. Party A also includes a lot they had purchased for $10,000 and has an FMV of $5,000 in the trade.
Data Entry
- Enter the $10,000 Party A paid for the lot in theAdj basis of other property given upfield. This is used on Form 8824.
- Enter the FMV of the lot given up in theFMV of other property given upfield. This is used in the gain realized calculation.
- The $20,000 cash paid goes in theCash paidfield.
- The FMV ($130,000) of the property received is entered in theFMV of like-kind property receivedfield.
