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.