Basis of Property Acquired in Like-Kind Exchange
The unrecognized gain or unrecognized loss from a like-kind exchange is preserved in the new property received in the exchange. New property receives the basis of the old property, adjusted in value for any other property given or received in the exchange (see below for further discussion of “boot.”)
The taxpayer’s basis in the new property is determined by starting with the taxpayer’s basis in the old property exchanged. Adjustments are then made as needed to account for other property that may be received in the exchange. By using the taxpayer’s basis in the old property as the reference point for the new property’s basis, unrecognized gain or loss is preserved.
By way of example, let’s say a taxpayer exchanges an old asset worth $20,000 in which the taxpayer had a basis of $14,000 for a like-kind asset. Assuming the exchange qualifies for non-recognition (based on how the taxpayer held the old property and how the taxpayer intends to hold the new property), the $6,000 realized gain will not be recognized, and the taxpayer’s basis in the new asset will be $14,000. Because the new asset likely has a value of $20,000 (in an arms’-length transaction the two assets would be deemed to have equal values), the $6,000 unrecognized gain is preserved in the new asset. Thus, in any like-kind exchange, the exact amount of any unrecognized gain or loss is preserved in the basis of the asset acquired in the exchange.
Read more about this topic: Like-kind Exchange
Famous quotes containing the words basis of, basis, property, acquired and/or exchange:
“The basis of successful relief in national distress is to mobilize and organize the infinite number of agencies of self help in the community. That has been the American way.”
—Herbert Hoover (1874–1964)
“Compassion has no place in the natural order of the world which operates on the basis of necessity. Compassion opposes this order and is therefore best thought of as being in some way supernatural.”
—John Berger (b. 1926)
“Open the doors of opportunity to talent and virtue and they will do themselves justice, and property will not be in bad hands.”
—Ralph Waldo Emerson (1803–1882)
“We don’t know when our name came into being or how some distant ancestor acquired it. We don’t understand our name at all, we don’t know its history and yet we bear it with exalted fidelity, we merge with it, we like it, we are ridiculously proud of it as if we had thought it up ourselves in a moment of brilliant inspiration.”
—Milan Kundera (b. 1929)
“... the subjective viewpoint is the only one to use regarding a library. Your true library is a collection of the books you want. You may have deplorably poor taste or bad judgment. Never mind. Correct those traits before you exchange your books.”
—Carolyn Wells (1862–1942)