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Using the Like-Kind Exchange Wizard in Lacerte

by Intuit• Updated 2 months ago

The easiest and 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.

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. Click on Like-Kind Exchange Wizard button.
  5. Click 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. Click the > symbol between the two properties windows to move the asset to the Properties being exchanged window.
  9. Click 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. Click 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. Click 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. Click 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. Click Next.
  18. View the Like Kind Exchange Summary.
  19. Click Finish.
  20. Click 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.

Video demonstration

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.

Frequently asked questions

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.

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 x 9/12=$7,500). The remaining $2,500 is the depreciation allocable to the new asset for Oct., Nov., and Dec.

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.

According to the 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 in 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).

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 - allows 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 between $3,060 and the exchanged vehicle's depreciation can be taken as Section 179 deduction. No regular depreciation is allowed if the exchanged vehicle's depreciation or section 179 deduction for the vehicle equals $3,060.
  • MACRS property for Vehicle - section 179 on MACRS property is allowed subject to section 179 limitations. New vehicle is depreciated for half year using MACRS first-year percentage table amount.
  • Multiple MACRS property for multiple MACRS property - The exchanged MACRS property is depreciated in full for entire year using MACRS percentage table amount, section 179 allowed in full on new MACRS property subject to section 179 limitations, new MACRS property depreciated in full for half year using MACRS percentage table amount.
  • Multiple Vehicle for Multiple Vehicle - All vehicles in the exchange that have depreciable basis remaining will be depreciated or take section 179 deduction to the lesser of the $3,060 first-year vehicle limitation or the MACRS percentage table amount.
  • Begin by handling the transaction like a bulk sale.
  • After you've created the bulk sale for Asset 1 and Asset 2, create the new asset received. Enter the pertinent information in the new asset received along with the Name or number of primary asset in like-kind exchange (code 279) of the two assets given up by pressing Ctrl+T and entering Asset 1's asset number on one line and Asset 2's asset number on the second input line.
  • For example, you're disposing two assets for one. In Asset 1, enter all the sale information along with the pertinent like-kind exchange information. In Asset 2, enter the number of asset containing the sales price along with the date sold. If the client is setting up the new asset for the asset received, enter in the new asset created the date placed in service, cost or basis, method along the asset number of the two assets given up in Name or number of primary asset in like-kind exchange (code 279) by pressing Ctrl+T entering Asset 1's asset number on one line of the input and Asset 2's asset number on line 2 of the input. If the client doesn't set up a new asset for the asset received, then enter Asset 1's asset number in Asset 2's Name or number of primary asset in like-kind exchange (code 279).

To override the default description entered in the Description of property (Screen 14, code 800) field, enter an alternate description here in the Description of property (Form 4797) [O] (code 14) field located in the Sale or disposition of Property. Example: Asset 1, Asset 2, Asset 3 etc?.

According to Bulletin No 2000-3, January 18, 2000, Section Exchange of MACRS Property for MARCS Property, 2000-4:

The service will allow a taxpayer to continue to use its present method of depreciating the acquired property and will treat these methods as allowable methods of depreciation. However, a taxpayer presently treating the acquired property as newly purchased MACRS property may change the methods to treating the property, provided the property has been treated by the taxpayer as acquired in a 1031 like-kind exchange. In addition, there's no guidance as to how to depreciate the basis of the acquired property under section 168.

Therefore, the program assumes that the client wants to depreciate the newly acquired asset if the mid-quarter rule applies. If the client wants to depreciate the asset with the same depreciation method as the exchanged asset, then override the convention of the newly acquired asset using the 1=HY, 2=MQ (1st year automatic) (code 49) field on the Depreciation screen under the Asset Information section.

Check the box labeled Combine listed property on the 4562, Part V on the primary assets to combine all linked assets for a single line presentation. All cost basis and depreciation figures will be combined and presented with the primary asset description. If there is an entry in Date sold or Date traded, it'll be used in the date column.

Lacerte Tax 2023

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