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 shame is not some personal mistake of ours, but the ignominy, the humiliation we feel that we must be what we are without any choice in the matter, and that this humiliation is seen by everyone.”
—Milan Kundera (b. 1929)
“The primacy of the word, basis of the human psyche, that has in our age been used for mind-bending persuasion and brain-washing pulp, disgraced by Goebbels and debased by advertising copy, remains a force for freedom that flies out between all bars.”
—Nadine Gordimer (b. 1923)
“Let the amelioration in our laws of property proceed from the concession of the rich, not from the grasping of the poor. Let us understand that the equitable rule is, that no one should take more than his share, let him be ever so rich.”
—Ralph Waldo Emerson (1803–1882)
“Negation is the mind’s first freedom, yet a negative habit is fruitful only so long as we exert ourselves to overcome it, adapt it to our needs; once acquired it can imprison us.”
—E.M. Cioran (b. 1911)
“I cannot say what poetry is; I know that our sufferings and our concentrated joy, our states of plunging far and dark and turning to come back to the world—so that the moment of intense turning seems still and universal—all are here, in a music like the music of our time, like the hero and like the anonymous forgotten; and there is an exchange here in which our lives are met, and created.”
—Muriel Rukeyser (1913–1980)