Like-Kind Exchange Transaction of Fixed Assets

A like-kind exchange is often referred to as a “1301 exchange” because of IRS section 1301. This type of transaction allows owners of certain kinds of assets to exchange one asset for another while deferring capital gains. The asset must be held for business or investment purposes.

Like Kind Exchange 1

The first part of the exchange is to transfer the remaining value of the relinquished asset to an exchange basis asset. Sometimes taxpayers participating in a like-kind exchange also receive cash or other property in addition to the like-kind property. This non-like-kind property is referred to as excess or boot.

Here is screen shot of the Like-Kind Exchange feature in Bassets eDepreciation:

Like Kind Exchange 2

The Bassets eDepreciation like-kind exchange procedure will exchange a current asset for another asset. This feature also allows for any difference (cash or boot) to be accounted for separately in a third asset. All pieces of the transaction are linked through auditing fields to ensure accurate reporting of each individual asset and the entire transaction.

The key pieces of information for the relinquished asset are the asset class, original purchase price, service date, depreciation method and first year convention. Based on the date of the exchange, eDepreciation will calculate the net book value and remaining life to be used in the exchange basis asset. If there is cash or boot, then an excess basis asset will be created to account for this extra value. Each of the new assets will then independently depreciate, but continue to be linked as part of the exchange.

Questions or comments about this post? We invite you to respond in the space below.

More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.

Leave a Reply