Using the Like-Kind Exchange Wizard in Lacerte

The most efficient way to enter a section 1031 like-kind exchange is by using the Like-Kind Exchange Wizard on the Depreciation screen. You can only do this in interactive mode. This feature isn't available in batch mode.

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Follow these steps to enter a like-kind exchange using the Like-Kind Exchange Wizard:

1. Go to the Depreciation screen:
   • Screen 22 (Individual)
   • Screen 14 (Partnership)
   • Screen 21 (Corporate)
   • Screen 16 (S Corporate)
   • Screen 27 (Fiduciary)
2. Select the Asset being exchanged from the left navigation panel.
3. Scroll down to the Like-Kind Exchange (8824) section.
4. Select Like-Kind Exchange Wizard.
5. Select Next on the introduction window.
6. Enter the Date the property transferred to other party.
7. Select the asset(s) being exchanged from the Available Properties section.
   • If the asset is already listed under the Properties being exchanged section skip to step 9.
8. Select the > symbol between the two properties windows to move the asset to the Properties being exchanged window.
9. Select Next.
10. Enter the information for the property received:
    • Description of property
    • Date property found for exchange
    • Date property received for exchange
    • FMV of like-kind property
    • FMV of other assets (not like-kind) (if applicable)
11. Select Next.
12. Complete all applicable information on the Cash and Loan Amounts window:
    • Cash Given by Taxpayer
    • Cash Received by Taxpayer
      • Don't enter a value for both Cash Given by Taxpayer and Cash Received by Taxpayer. Enter the net value as either given or received.
    • New loan received (Assumed by taxpayer)
    • Old loan given up (Assumed by other party)
    • Expenses of sale
13. Select Next.
14. Complete all applicable information on the Data About Other Property Given Up window (if there are other properties given up that aren't like-kind properties):
    • FMV of other property (non-cash)
    • Adjusted basis of other property 
    • State basis of other property (if different)
15. Select Next.
16. Mark the checkbox labeled Simplified Method - Elect to not create carryover basis assets Reg. 1.168(i)-6(i), if applicable.
    • If this box is checked, one asset will be created for the full basis of the property received (Form 8824, line 25).
    • If this box isn't checked, a separate carryover basis asset will be created for each asset given up on the depreciation screen, a new asset will be created on the depreciation schedule for an incremental investment (Boot); and the adjusted basis of all these assets sums to the full basis of the property received (Form 8824, line 25).
17. Select Next.
18. View the Like Kind Exchange Summary.
19. Select Finish.
20. Select Yes or No at the last window.
    • If Yes, Lacerte will create a new asset with the new Description and new Cost/Basis of the Property Received.
    •  If No, you'll have to manually create a new asset.

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Video demonstration

Explanation of calculations

The new Cost/Basis of the Property Received is calculated by:

Cost/Basis of property given up
-  Prior and Current depreciation
+  Expenses of sale
+  Cash given by taxpayer
-  Cash received by taxpayer
+  New loans on property received
-  Old loans on property given up
+  FMV of other property given up

=  New Cost/Basis of property received

The Realized Gain is calculated by:

FMV of property received
-  Adjusted Basis of property given up

=  Realized Gain (Form 8824, line 19)

The Recognized Gain is calculated by:

Cash received by taxpayer
-  Expenses of Sale or Exchange

=  Recognized Gain (Form 8824, line 23)

The Like-Kind Exchange Wizard isn't able to produce an exchange in which one asset is given up for the receipt of two assets. The new asset created at the end of the like-kind exchange will need to be adjusted to reflect the correct cost/basis, and then a new asset added to complete the multiple assets received piece of the exchange.

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Why is there no date sold printing on the depreciation schedules for the assets given up?

For the purposes of determining the depreciation allowable for MACRS property acquired in exchanges of MACRS property for like-kind property to which section 1031 applies, the acquired MACRS property should be treated in the same manner as the exchanged property with respect to so much of the taxpayer's basis in the exchanged MACRS property. Therefore, the acquired MACRS property is depreciated over the remaining recovery period of, and using the same depreciation method and convention as that of, the exchanged MACRS property. Any excess of the basis in the acquired MACRS property over the adjusted basis in the exchanged MACRS property is treated as newly purchased MACRS property.

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Why is the accumulated depreciation amount on the "Adjusted Basis of Like-Kind Property Given, Amounts Paid to Other Party, and Exchange Expenses (Form 8824, Line 18)" worksheet different from the depreciation schedules?

The current year depreciation calculation is prorated for the asset given up. Lacerte uses the number of months the asset was in use in the current year until the date of sale. This calculated amount is added to prior depreciation amount to total accumulated depreciation.

The total current depreciation as shown on the depreciation schedules consists of two parts but prints as one amount. The first part is the depreciation up to the date of exchange (date sold). The second part is for the remaining depreciation allowed for the year, which is allocable to the new asset.

Example: Depreciation schedule shows $10,000 for current depreciation. The exchange took place on 9-15-00 or 9/12 of the total year's depreciation, which is allocable to the asset given up and is included in the amount on line 2 of the Notice 2000-4 worksheet. In this instance, $7,500 ($10,000 × 9/12 = $7,500). The remaining $2,500 is the depreciation allocable to the new asset for Oct., Nov., and Dec.

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What amount will I set up as the basis of like-kind property received?

The cost or basis is the excess of the basis in the acquired asset over the basis in the exchanged asset. The acquired (new) asset must be depreciated using the original method, life, and convention used for the (old) exchanged asset. Most likely, the basis of the like-kind property received is the amount printing on Form 8824, line 25. However, the basis of the asset received can be affected by cash given and mortgage assumed by taxpayer.

The current depreciation schedule reflects both the exchanged and acquired assets remaining on the books, with the acquired asset now being depreciated only but the sum of the cost or basis of the two assets reflecting the total basis for the acquired asset. The amount printing on Form 8824, line 24 remains deferred until the asset is completely disposed.

Example: The adjusted basis of the asset given up is $17,858 (basis of asset given up is $25,000 minus accumulated depreciation of $7,242 equals $17,858). Form 8824 line 25 reflects this amount. In this scenario, the taxpayer wouldn't set up a new asset received because no other value was given to acquire the new asset. In the above scenario, the taxpayer gives $18,000 in cash in the like-kind exchange. The basis of the asset becomes $35,858. The asset was given up valued at $17,858, and the new asset received valued at $18,000. The taxpayer would set up the new asset received as $18,000. On the depreciation schedule, you have two lines: the old asset at $17,858 and the new one at $18,000.

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I entered the total automobile mileage for both the asset given up and the new asset created but the program is only printing the mileage for the new asset on Form 4562, lines 28–31, column (a). Why?

According to Notice 2004 concerning total automobile mileage, the old asset represents the new and the new asset represents the old asset. Therefore, the total automobile mileage is one and the same. Enter the total automobile mileage for both assets in the old asset and the mileage will print correctly on Form 4562, page 2, lines 28–31, column (a).

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How does the program handle section 179 in dealing with Notice 2000-4?

There are several different scenarios pertaining to the treatment of section 179 in a like-kind exchange. Section 179 is only allowable on the new asset (excess basis in new asset over asset given up). Here are a few:

• MACRS property for MACRS property — allowed in full on new asset subject to section 179 limitations.
• Vehicle for Vehicle — section 179 on new vehicle isn't allowed if the exchanged vehicle uses the entire new vehicle $3,060 first-year limitation. If the exchanged vehicle is depreciated for less than $3,060, the difference can be taken as section 179 deduction.
• MACRS property for Vehicle — section 179 allowed on MACRS property; new vehicle depreciated using half-year MACRS.
• Multiple MACRS property for multiple MACRS property — exchanged property depreciated in full; new MACRS property allowed full section 179 and half-year depreciation.
• Multiple Vehicle for Multiple Vehicle — vehicles are depreciated up to the lesser of $3,060 or MACRS first-year percentage.

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How do you enter a multiple-asset like-kind exchange?

• Begin by handling the transaction like a bulk sale.
• After creating the bulk sale for Asset 1 and Asset 2, create the new asset received. Enter the pertinent information and the Name or number of primary asset in like-kind exchange (code 279) for both assets by pressing Ctrl+T.
• Example: You're disposing two assets for one. Enter sale information in Asset 1; enter the asset number containing the sales price and date sold in Asset 2. If creating a new asset received, enter date placed in service, cost, method, and asset numbers (using code 279). If not creating a new asset, enter Asset 1’s asset number in Asset 2’s code 279 field.

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In a multiple-asset like-kind exchange, how do I get the description on Form 8824 line 1 to reflect multiple assets?

To override the default description entered in the Description of property (Screen 14, code 800), enter an alternate description in Description of property (Form 4797) [O] (code 14) in the Sale or Disposition of Property section.
Example: “Asset 1, Asset 2, Asset 3…”

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When setting up the acquired asset, why does Lacerte automatically change the depreciation method to mid-quarter?

According to Bulletin No. 2000-3, Section Exchange of MACRS Property for MACRS Property, the service allows the taxpayer to continue to use its present depreciation method for the acquired property. However, if the taxpayer previously treated the acquired property as newly purchased MACRS property, the method may change.

Therefore, the program assumes the client wants to depreciate the newly acquired asset using mid-quarter rules if they apply. If the client wants to continue depreciating using the exchanged asset’s method, override the convention using field 1=HY, 2=MQ (1st year automatic) (code 49) on the Depreciation screen.

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The program is presenting the linked listed property assets individually on Form 4562, Part V. How can I combine all linked assets?

Check the box labeled Combine listed property on the 4562, Part V on the primary asset. This combines all linked assets into a single line, with combined cost basis and depreciation. If a Date sold or Date traded is entered, it prints in the date column.

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The program appears to be ignoring the auto depreciation limits for the newly created asset. Why?

Most likely, the client entered data in Notice 2004, code 279 (Linked Asset Number) in both the asset given up and the newly created asset. Remove the entry from the asset given up so the program can apply auto depreciation limits properly. Code 279 should only be entered on the new asset when appropriate.

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Why isn't the program automatically applying the Notice 2000-4 provision for the bulk sale of assets in a like-kind exchange?

Most likely, a non-MACRS depreciation method was entered. For the program to automatically apply Notice 2000-4, all assets involved must use a MACRS method. If any asset uses a non-MACRS method, manually enter 1 in Apply Provisions: 1=yes, 2=no in the Like-Kind Exchange (8824) category for those assets.

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