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:
“It was the custom
For his rage against chaos
To abate on the way to church,
In regulations of his spirit.
How good life is, on the basis of propriety,
To be followed by a platter of capon!”
—Wallace Stevens (1879–1955)
“Even upon such a basis hast thou built
A monument, whose cement hath been guilt!”
—George Gordon Noel Byron (1788–1824)
“You and I ... are convinced of the fact that if our Government in Washington and in a majority of the States should revert to the control of those who frankly put property ahead of human beings instead of working for human beings under a system of government which recognizes property, the nation as a whole would again be in a bad situation.”
—Franklin D. Roosevelt (1882–1945)
“It is no longer possible for lyric poetry to express the immensity of our experience. Life has grown too cumbersome, too complicated. We have acquired values which are best expressed in prose.”
—Boris Pasternak (1890–1960)
“Development, it turns out, occurs through this process of progressively more complex exchange between a child and somebody else—especially somebody who’s crazy about that child.”
—Urie Bronfenbrenner (b. 1917)