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 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)
“Our fathers and grandfathers who poured over the Midwest were self-reliant, rugged, God-fearing people of indomitable courage.... They asked only for freedom of opportunity and equal chance. In these conceptions lies the real basis of American democracy. They and their fathers give a genius to American institutions that distinguished our people from any other in the world.”
—Herbert Hoover (1874–1964)
“By rendering the labor of one, the property of the other, they cherish pride, luxury, and vanity on one side; on the other, vice and servility, or hatred and revolt.”
—James Madison (1751–1836)
“None of you can ever be proud enough of being the child of SUCH a Father who has not his equal in this world—so great, so good, so faultless. Try, all of you, to follow in his footsteps and don’t be discouraged, for to be really in everything like him none of you, I am sure, will ever be. Try, therefore, to be like him in some points, and you will have acquired a great deal.”
—Victoria (1819–1901)
“The first place he went into was the Royal Exchange .... where men of all ages and all nations were assembled, with no other view than to barter for interest. The countenances of most of the people showed they were filled with anxiety; some indeed appeared pleased, but yet it was with a mixture of fear.... [David] resolved to stay no longer in a place where riches were esteemed goodness, and deceit, low cunning, and giving up all things to the love of gain were thought wisdom.”
—Sarah Fielding (1710–1768)