Like King of Exchange question

[Absolut]

I have a client that bought a 98 Holland Tractor back on 10/16/98 for $18,000.00, he depreciated 100% for businss, and used all his depreciation due in 2006.

On 3/30/07 he trades the 98 Holland Tractor in for a 06 Holland Tractor, sales slips states the following:
Tractor = $19,980.00
Loader = $3,700.00
Trade in allowance = $11,680.00
Balance due = $12,600 (which is price plus tax)

My questions are these:

#1. On my depreciation schedule for the 98 Holland, I put that it sold for $11,680.00 (Trade in Value), and this puts a gain of $11,680.00 on the tax return. How do you connect this to the new tractor, so that the gain isn't there?

#2. I pulled up a 8824, and filled in the blanks, said it was connected to a Schedule C, but I don't see where it hits anything. How does the 8824 flow to the Schedule C?

#3. Am I suppose to fill in the date sold on the Asset worksheet, but maybe not put the price in there?

Any help would be appreciated.

[solomon]

You are making this too complicated. Do an election under Reg. 1.168(i)-6. This would be a tax free disposition rather than an exchange - assuming this was MACRS property.

[Roland Slugg]

Couldn't be simpler

Since the old tractor was fully depreciated, your situation is as simple as they get. Just: (1) remove the old tractor from the depreciation schedule; (2) add the new tractor to the depreciation schedule using its net cost ... $12,600; (3) complete F-8824 and attach to the T/P's return.

Added comments:

(A) I'm not sure I would bother completing F-8824, but I suppose it is required. Since the old item was fully depreciated, the basis of the new item is simply its net cost out the door.

(B) Don't report the exchange on F-4797 or Schedule D.

(C) The net cost of the new tractor qualifies for the §179 deduction.

(D) The "election" mentioned by solomon above only applies when there is remaining basis in the old asset. (I assume he is referring to the election under Regs. §1.168(i)-6(i).)

[Absolut]

Like Kind of Exchange

Thank you to both of you for answering me.

[les grans]

Looks like we blew right past the $3,700 loader, eh?
I'll assume that the loader is "like-kind" with the traded-in tractor. There's still no gain to recognize, but I think you've got to divide the $12,600 basis between the two pieces of acquired equipment (in the ratio of their FMVs, likely), and then either 179 or depreciate each of them.
This is classic section 1031 like-kind exchange/trade-in territory, but I love the title of the thread: Like King ... Exchange

[Absolut]

Oops on the Like Kind (King) of Exchange

Didn't look at the spelling. The older tractor also had a loader, so it basically was up grading to a new one.