Like Kind Exchange---Truck

[DaveinTexas]

Here's the scenario; can anyone tell me if I have this correct?

Client is trading an old diesel truck for a new one.

Old truck cost $48000 - 46065 (depreciation taken) = $1,935 adjusted basis

New truck cost $51000. The dealership allowed him $24,500 on his trade in.

All exchange expenses are included in the $51000.

Total amount financed on new truck: $51000 - $24000 (trade in value) + 12,692 (payoff of old truck) = $39,692.

Adjusted basis of new truck: $39,692 (amount financed) + $1,935 (adj basis of old truck) =

$41,627.

I get hung up on line 18 of the 8824. "Net amounts paid to other party". Does that included the amount financed? He is not paying anyone cash, but he is financing this new truck----is that what that line means? I can't get any guidance from the instructions.

TIA

[Gene V]

You have two-difference figure for trade-in value $24,500 and $24,000, either way your Base for your new truck is $28,435, (not $41,627) which is line 25 on Form 8824 line 18, is the same $28,435. Jainen will explain to you why you should disregard the loans.

[DaveinTexas]

oh i see

said the blind man.

The original trade in value was $24,500; excuse the mistype.

I see what you are saying. The basis is the FMV of the new truck, reduced by the trade in amount of the old truck. This net figure is the actual amount paid for the new truck; add to that the adjusted basis of the old truck and that is how you come up with $28,435.

Or in other words:

$51000 - $24,500 = $26500 + $1,935 (basis of old truck) = $28,435. I always get hung up on the figures that don't matter.

Thank you for the clarification.

[jainen]

loans are irrelevant

>>Does that included the amount financed?<<

The loans do not affect the calculation of basis or gain. Suppose you bought the new truck with 100% financing--the basis is still $51000, same as if you paid all cash or gave the dealer something else of value.

Suppose you sold the old truck for a $22565 gain ($24500 sale price minus $1935 adjusted basis). That is your realized gain whether you use the sales proceeds to pay off a loan, give them to your brother-in-law, or roll them over into a new truck. It doesn't matter how you structure the transaction. Realized gain and basis are immutable facts. The loans are irrelevant.

[DaveinTexas]

Thank you Jainen and Gene

I appreciate the info.