How to Compute Adjusted Basis in Like-Kind Exchange

How do you calculate like-kind exchange?

How to Compute Adjusted Basis in Like-Kind Exchange

  1. Add together the closing costs you paid to acquire the investment property you are giving up in a like-kind exchange.
  2. Add the closing costs to the price you paid for the investment property you are giving up to determine the property’s cost basis.

How do you calculate a new basis in a 1031 exchange?

The new or acquired property’s cost basis must also be calculated. This is just the purchase price plus commissions. We’ll use a purchase price of $400,000 plus $15,000 in closing cost for a cost basis of $415,000.

What is adjusted basis of like-kind property?

Residential investment properties are currently depreciated over 27.5 years, while commercial properties are depreciated over 39 years. In most cases to get the current adjusted basis, we simply take the starting basis, add the cost of improvements, and subtract all the depreciation taken or allowed on that property.

What is a 1031 exchange example?

Example 1: The Basics You choose to sell your current property with a $150,000 mortgage on it. It sells for $650,000. If you want to meet the conditions for a 1031 exchange, you much purchase a replacement property for at least $650,000. In addition, you need to borrow a minimum of $150,000 to pay for it.

How do partial 1031 exchanges work?

They simply become “partial” 1031 Exchanges where the taxpayer has a partially tax deferred transaction rather than deferring all of their taxes. The portion of the exchange proceeds not reinvested is called “boot” and is subject to capital gains and depreciation recapture taxes.

How do you determine the basis of acquired property in a like kind exchange?

1031 exchanges allow taxpayers to defer capital gains. In deferring those gains, your basis has to be recalculated. The general basis concept is that the new property purchased is the cost of that property minus any gain you deferred in the exchange.

How do you calculate excess basis?

Excess basis = cost basis for new property – adjusted basis of building A

  1. Building A adjusted basis is $250,000 -dep $150,000 = $100,000 = exchange basis.
  2. Building B $500,000 purchase price.
  3. Excess basis = purchase -exchange.
  4. Excess = $500,000 – $100,000 = $400,000 excess basis.

What exchanges are not considered a like-kind exchange?

Under IRC §1031, the following properties do not qualify for tax-deferred exchange treatment: Stock in trade or other property held primarily for sale (i.e. property held by a developer, “flipper” or other dealer) Securities or other evidences of indebtedness or interest. Stocks, bonds, or notes.

Which properties do not qualify for a like-kind exchange?

Understanding Like-Kind Properties Securities, stocks, bonds, partnership interests, and other financial assets are excluded from the definition of like-kind property.

How does IRS verify cost basis?

Preferred Records for Tax Basis According to the IRS, taxpayers need to keep records that show the tax basis of an investment. For stocks, bonds and mutual funds, records that show the purchase price, sales price and amount of commissions help prove the tax basis.

What is like-kind exchange?

What is like-kind exchange? Introduced to American tax law in 1921, like-kind exchange has been a long-established part of federal tax law for nearly 100 years. The premise of the law is simple, as stated in Section 1031:

Will the IRS pursue like-kind exchange for auto finance companies?

This window provided an opportunity for auto finance companies to realize the benefits of like-kind exchange before the opportunity closed. In the same way that people stand for the last out of a baseball game, seasoned tax specialists anticipate the IRS will pursue like-kind exchange with a heightened level of scrutiny in upcoming audit cycles.

Is there a 1031 exchange calculator?

That’s why we’re giving you the same 1031 exchange calculator our exchange experts use to help investors find smarter investments. Requires only 10 inputs into a simple Excel spreadsheet.

What happens to depreciation if there is no like-kind exchange?

In the absence of like-kind exchange, it’s important to reconsider depreciation for capital assets, such as leased vehicles. Compounding the issue, the elimination of LKE is not the only change with tax reform.