Completing a like-kind exchange from the depreciation screen in ProConnect Tax

With the simplified method, no asset tracking or linking is required. No carryover basis or boot assets are created, because you're allowed to create and depreciate the new asset based solely on the calculated basis of the property you received (Form 8824, line 25). It's one asset out/one asset in bookkeeping. The election to use the simplified method doesn't affect Form 8824—it only affects how new assets are set up to account for the property received. See Regulation 1.168(i)-6 for details.

Follow these steps to use the simplified method:

1. Under the Like-Kind Exchanges (8824) section, locate the Choose How to Create New Asset(s) subsection.
2. Check the box labeled Simplified method - elect to not create carryover basis assets.
3. Under the Election Information section, complete any applicable fields.
   • An election statement will print with the return and be attached to the e-file.
4. Go to the Check Return tab.
5. Make sure that Form 8824 is generating correctly.
6. Select Suggestions from the left side of the screen.
7. Look for a suggestion beginning with "Depreciation asset: The election to not apply...".
   • The suggestion will recommend the basis amount and date placed in service to use for the new asset acquired in the exchange.
8. Go to the Input Return tab.
9. Go to the Depreciation screen.
10. Enter the new asset acquired, using the amounts from step 7.

When you choose not to elect the simplified method, IRS regulations require you to track two components of the asset received: carryover basis and boot. The adjusted basis of both of these components sums to equal the full basis of the property received (Form 8824, line 25).

Carryover basis

For MACRS properties given up in a like-exchange, ProConnect Tax will automatically create a carryover basis asset for depreciation purposes. The carryover basis is defined as the lesser of the adjusted basis of the property given up or the basis in the property received. For the depreciation calculation in the year of exchange, the program will add-back the amount of depreciation claimed on the property given. If the basis of the property received should be used, a suggestion will generate specifying that an override should be entered in Carryover basis [Override]. A suggestion will generate indicating that a carryover basis asset was created.

Boot

The boot, also called incremental investment or excess basis, refers to the basis of property received that exceeds the carryover basis. Not all like-kind exchanges will involve excess basis. ProConnect Tax will generate a suggestion recommending the basis amount and date placed in service to use for the boot, and how to link the boot asset to the carryover basis asset for tracking in future years.

Follow these steps to apply the like-kind exchange regulations:

1. Go to the Check Return tab.
2. Make sure that Form 8824 is generating correctly.
3. Select Curr Year Depr (Regular) from the left side of the screen to view the depreciation schedule.
4. Make sure that the carryover basis asset appears.
   • By default, the program will name the carryover asset "Description of property received - C/O Basis," although the description may be cut off due to a character limit.
5. Click on Suggestions from the left side of the screen.
6. Follow the instructions in the Suggestions to enter the boot as a new asset on the Depreciation screen, if applicable.

ProConnect Tax Online generates a Linked Asset depreciation schedule to help you track depreciation after a like-kind exchange. This article will help you generate or suppress the schedule.

To generate or suppress the schedule:

1. On the Input Return tab, go to the Depreciation screen
2. Click Details to view more input fields
3. On the left-side menu, select Carryover Basis Depreciation
4. If a Name or number of primary asset in like-kind exchange or a Date traded (automatic for year of sale) is entered, the asset will show up on the Linked Asset depreciation schedule. Clear these fields to suppress the schedule.

Additional information:

• If this is a like-kind exchange and the taxpayer has decided not to elect the simplified method, then this entry is correct.
• If this is a like-kind exchange and the simplified method has been elected, or if this is not a like-kind exchange, nothing should be entered under Carryover Basis Depreciation. Remove entry to suppress the Linked Asset Schedule.
• If the primary asset is sold, the linked asset will also be sold.