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Chad Oberg
Chad Oberg, Certified Public Accountant (CPA)
Category: Tax
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Experience:  10 + years of accounting and tax experience, financial statements and business planning
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We did a like-kind exchange - traded in a business pickup (NBV

Resolved Question:

We did a like-kind exchange - traded in a business pickup (NBV $6354) with an outstanding loan balance ($16145) for a new business truck (cost $34371) with a new loan ($35017). We have a realized gain of $9146, but do we have a recognized gain? What is the basis on the new truck? I am having trouble with the form 8824.
Submitted: 4 years ago.
Category: Tax
Expert:  Chad Oberg replied 4 years ago.

Customer,

 

Your new basis using the loan total will be 25,871 ($35,017 - $9,146). I used the loan total since it was more than the cost. This usually happens if there are additional fees on the truck loan which are generally added to basis.

 

So, on form 8825, you enter the following:

 

Lines 1 & 2: TRANSPORTATION EQUIPMENT

 

Lines 3 - 6 of which 4,5 & 6 are usually the same date due to the trade-in on the same date.

 

Line 7 is usually no unless it is a related party

 

Skip down to line 16 here you will put the fair market value of the new care $35,017

 

Line 17 will be $35,017

 

Line 18 is going to be $25,871

 

Line 19 will be $9,146

 

Line 20 - 23 will be 0

 

Line 24 is $9,146

 

Line 25 is $25,871

 

If you have any questions or need further explanation, please do not hesitate to contact me.

 

Regards,

 

Chad

 

 

Customer: replied 4 years ago.

The way I looked at it (reading all of the supporting instructions), I think it should be:

Line 15: 16145 (liab assumed)

Line 16: 34471 (cost of new)

Line 18: 41370 (old truck NBV 6354 plus new loan 35016)

Line 19: 9146 realized gain

Line 20: 9146 (smaller of line 15 or 19)

Line 21:0

Line 22: 9146 (gain going to form 4797)

Line 23: 9146 (recognized gain)

Line 24: 0 (no deferred gain)

Line 25: 34317 (line 18 and 23 41370+9146 less line 15 16145)

 

From form 4797 asset held more than 1 year so it goes to schedule D (sole proprietor)

Expert:  Chad Oberg replied 4 years ago.

Customer,

 

We both should still end with the same result.

 

Line 15: net liabilities assumed by other party, should be 0 I believe. Did the other party assume liabilities or did you receive cash? Generally in an exchange of vehicle the cash does not go to your bank account. If you received actual cash in hand, it is not an exchange.

 

Line 16: $34,471

 

Line 17: $34,471

 

Line 18: Adjusted basis of like kind property you gave up $6,453 + Change in Liabilities of $35,017 - $16,145 = $25,325

 

Line 19: Realized Gain $9,146

 

Line 20 = 0

 

Line 21 = 0

 

Line 22 and 23 shouldn't be $9,146. This defeats the purpose of trying to defer the gain. Generally, in a 1031 you will realize the gain of $9,146 but you will not recognize (pay tax on the gain). They should be 0.

 

Line 24 = $9,146

 

Line 25 = $25,325

 

I used your numbers at work on our calculation worksheet and it appears that you should be able to defer the entire gain.

 

Regards,

 

Chad

 

 

 

Regards,

Chad Oberg, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 174
Experience: 10 + years of accounting and tax experience, financial statements and business planning
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