How do I account for a like-kind exchange?

For a successful like-kind exchange that straddles two years, the taxpayer will report the transaction on IRS Form 8824. 1 The exchange will be reported for the year in which the exchange began. For exchange funds received in the next tax year, the taxpayer will report those proceeds on IRS Form 6252.

What is a like-kind exchange example?

The IRS considers all “Investment Properties” to be “Like-Kind.” Properties do not need to be the same type. For example, raw land can be exchanged for an office building, a warehouse can be exchanged for NNN retail property, or a rental house for a Replacement Property Interest in a 300-unit apartment complex.

What type of account is a 1031 exchange?

If you’ve recently completed a 1031 like-kind exchange, you need to document your transaction for your accounting records. Although a deferred gain is an unearned revenue, it represents a future asset that counts as a liability on your balance sheet. Gains are seen as a liability until realized as an asset.

What is considered like-kind exchange?

Like-kind exchanges — when you exchange real property used for business or held as an investment solely for other business or investment property that is the same type or “like-kind” — have long been permitted under the Internal Revenue Code.

Are Like-Kind Exchanges allowed for GAAP?

To reiterate, like-kind exchanges are allowed only for real property after 2017. Thus, under the new rules, no gain or loss is recognized on the exchange of real property held for productive use in a trade or business or for investment if that real property is exchanged solely for real property.

Which states do not recognize 1031 exchanges?

There are also states that have withholding requirements if the seller of a piece of property in these states is a non-resident of any of the following states: California, Colorado, Hawaii, Georgia, Maryland, New Jersey, Mississippi, New York, North Carolina, Oregon, West Virginia, Maine, South Carolina, Rhode Island.

Is like-kind exchange mandatory?

Personal Property Exchanges Like-kind exchange treatment is mandatory if its requirements are met. For example, if a taxpayer traded in a truck used in its business for a new truck before 2018, the trade-in would be treated as a like-kind exchange.

Is Boot ordinary or capital gain?

The base amount of the exchange remains tax-deferred, but the boot is considered a taxable gain. Even with the boot, however, the recipient will pay less in capital gains taxes for the current tax year than if he had sold the appreciated property and then purchased a different property.

How long must you hold 1031 property?

If a property has been acquired through a 1031 Exchange and is later converted into a primary residence, it is necessary to hold the property for no less than five years or the sale will be fully taxable.

How much do you have to reinvest in 1031 exchange?

Normally a 1031 exchange is used to defer the capital gains tax owed by reinvesting 100% of the proceeds from the sale of a relinquished property into the new replacement property.

Does equipment qualify for like kind exchange?

Effective Jan. 1, 2018, exchanges of personal or intangible property such as machinery, equipment, vehicles, artwork, collectibles, patents, and other intellectual property generally do not qualify for nonrecognition of gain or loss as like-kind exchanges.

What is the exchange value in accounting?

An exchange of nonmonetary assets occurs when two entities swap nonfinancial assets. The accounting for a nonmonetary transaction is based on the fair values of the assets transferred. At the fair value of the asset transferred in exchange for it. Record a gain or loss on the exchange.

How does accounting work for a like kind exchange?

For financial accounting, a pure like-kind exchange results in no gain being recognized. If the fair market value of the asset given in the exchange is less than its book value, a loss must be recorded for the impairment and the book value of the asset given in the exchange becomes the book value of the asset received in the exchange. Example 1.

When does a like-kind exchange take place?

When a like-kind exchange takes place the gain or loss realized on the exchange must be determined. The gain or loss that is recognized depends upon whether a gain or loss was realized and whether any boot was received. The financial accounting and tax accounting treatment given to like-kind exchanges often differs.

How is a like kind exchange tax deferred?

A like-kind exchange is a tax-deferred transaction that allows for the disposal of an asset and the acquisition of another similar asset without generating a capital gains tax liability from the sale of the first asset.

What happens in a like-kind sale of an asset?

In a sale, the gain or loss that is realized would be recognized and the book value of any similar asset purchased would be its cost. In a pure like-kind exchange, one asset is exchanged for another asset of like kind. No other form of consideration is given or received.