Like Kind Exchanges

[KRP]

I wanted to know how you report property acquired in a like kind exchange. Do you depreciate the carryover basis for the current year over the remaining recovery period of the property exchanged and treat the boot as newly placed in service property? Or do you elect out of these rules and treat the adjusted basis of the exchanged property as if it was disposed of at the time of the exchange, then treat the carryover basis and the boot of the acquired property as if placed in service on the date it was acquired? I would also like to hear why you use the method you use.

[appelman]

I always recommend the election.

Just because it's easier for everyone, which translates to lower fees!

[Roland Slugg]

Just because it's easier for everyone, which translates to lower fees!

I don't think it's in a client's best interest to recommend this just because it's easier for everyone. And it's not that much easier, is it?

Making the election (which is irrevocable) serves to extend the remaining basis of the traded-in asset over the life of the newly acquired asset, resulting in a lower annual depreciation deduction for the years remaining on the old asset's life. For taxpayers who wish to minimize taxes now, this is not beneficial. For taxpayers who will need higher deductions in future years, however, the election might make sense.

I don't regard having to make two depreciation calculations for what is, essentially, one asset as particularly burdensome ... negligible, really. On the other hand what is in the client's/taxpayer's best interest is paramount.