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Completing a Like Kind Exchange for business returns in ProSeries

by Intuit• Updated 4 months ago

Before you start:

  • IRS Regulations changed effective January 1st, 2018. A like-kind exchange, or 1031 exchange, can only be completed for real property. See here for more details.
  • A like-kind exchange consists of three main steps. All three steps must be completed for the tax return to contain the correct information.

Step 1: Disposing of the original asset

  1. Open the Asset Entry Worksheet for the asset being traded.
  2. Scroll down to the Dispositions section.
  3. In the Date of disposition field, enter the date the property was given up.
    • If multiple assets were included in the trade simply enter the same Date of Disposition on each asset given up.
  4. Do not complete any other information in the Dispositions section. Entering other information, such as sales price, will generate the Form 4797.

Step 2: Completing the 8824

  1. Open the 8824.
  2. In Part I complete lines 1-7 with the applicable trade information.
  3. If the exchange was with a related party complete Part II.
  4. Complete the Summary Smart Worksheet:
    • Lines A-F will pertain to the property received.
    • Lines G-K will pertain to the property given up.
    • If no additional property was given up leave like J blank.
  5. Complete the Like-Kind Adjusted Basis Smart Worksheet
  6. Enter any other information about this exchange.
  7. ProSeries will now flow these entries to the 8824 to complete the required calculations. There are some important lines to review:
    1. Line 23 is the amount of gain, if any, that will be taxable on the tax return.
    2. Line 25 is the Basis of like-kind property received. You'll need this for Step 3.

Step 3: Entering the new asset entry worksheet(s)

Before you create the new asset, you'll need to decide if you're electing out of the regs in IRC Section 1.168(i)-6(i). If you are electing out of the regs then only one new asset entry worksheet is needed. If you elect to use the regs then you'll need multiple asset entry worksheets (one to track excess basis and one to track exchange basis).  Complete the appropriate Step 3 for your choice:

  1. Press F6 to bring up Open Forms.
  2. Type DEE and click OK.
  3. Enter a description of the new property and click Finish.
  4. Choose the schedule to link the asset to.
  5. Complete the Asset Information section with the data from the 8824:
    • Date acquired and Date placed in service would be from the dates from the like-kind exchange, not the date placed in service of the original asset.
    • Cost or basis should be the Basis from the 8824 line 25.
    • Choose the most accurate Type of asset.
  6. Scroll down to the MACRS Property Involved in a Like-kind Exchange or Involuntary Conversion section.
  7. For Elect OUT of regs under Sec 1.138(i)-6(i) select Yes.
  8. In the field, If this asset represents entire basis of replacement property, enter excess basis enter the Excess (additional) basis.
  1. Press F6 to bring up Open Forms.
  2. Type DEE and click OK.
  3. Enter a description of the new property and click Finish.
  4. Choose the schedule to link the asset to.
  5. Complete the Asset Information section with the data from the 8824:
    • Date acquired and Date placed in service would be from the dates from the like-kind exchange, not the date placed in service of the original asset.
    • Cost or basis should be the Exchanged (carryover) basis.
    • Choose the most accurate Type of asset.
  6. Scroll down to the MACRS Property Involved in a Like-kind Exchange or Involuntary Conversion section.
  7. For Elect OUT of regs under Sec 1.138(i)-6(i) select No.
  8. Create and enter a unique numerical Asset ID for this like kind exchange.
  9. In the field, If this asset represents exchanged basis of replacement property, enter: you'll need to enter the details regarding the property given up.
  10. Scroll to the top of the Asset Entry Worksheet and select the QuickZoom to another copy of Asset Entry Worksheet.  
  11. Enter a description of the new property and select Finish.
  12. Complete the Asset Information section with the data from the 8824:
    • Date acquired and Date placed in service would be from the dates from the like-kind exchange, not the date placed in service of the original asset.
    • Cost or basis should be the Excess (additional) basis.
    • Choose the most accurate Type of asset.
  13. Scroll down to the MACRS Property Involved in a Like-kind Exchange or Involuntary Conversion section.
  14. For Elect OUT of regs under Sec 1.138(i)-6(i) select No.
  15. Enter the same Asset ID you used for the first Asset Entry Worksheet.

The first asset containing the Exchanged basis Section 179 cannot be claimed but Special Depreciation Allowance may be claimed if eligible. The second asset containing the Excess basis both Section 179 and Special Depreciation Allowance may be claimed if eligible.

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