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 good manners is self-reliance. Necessity is the law of all who are not self-possessed.”
—Ralph Waldo Emerson (1803–1882)
“The basis of political economy is non-interference. The only safe rule is found in the self-adjusting meter of demand and supply. Do not legislate. Meddle, and you snap the sinews with your sumptuary laws.”
—Ralph Waldo Emerson (1803–1882)
“Never let the estate decrease in your hands. It is only by such resolutions as that that English noblemen and English gentlemen can preserve their country. I cannot bear to see property changing hands.”
—Anthony Trollope (1815–1882)
“It is not enough that France should be regarded as a country which enjoys the remains of a freedom acquired long ago. If she is still to count in the world—and if she does not intend to, she may as well perish—she must be seen by her own citizens and by all men as an ever-flowing source of liberty. There must not be a single genuine lover of freedom in the whole world who can have a valid reason for hating France.”
—Simone Weil (1909–1943)
“We never exchange more than three words with a Friend in our lives on that level to which our thoughts and feelings almost habitually rise.”
—Henry David Thoreau (1817–1862)