ASSET KEEPER’S IMPLEMENTATION RULES FOR LIKE-KIND EXCHANGES
PURSUANT TO IRB 2004-14

IRB 2004-14 is effective for like-kind exchanges on or after February 26, 2004.

There are some provisions of IRB 2004-14 that are easily implemented in Asset Keeper; however, other provisions require detailed analysis by the user or provide little or no benefit to the taxpayer.  In addition, those related to luxury autos, greatly complicate the recordkeeping process.  

Generally, when you trade an asset, Asset Keeper will process it in accordance with the provisions of IRB 2004-14.  However, some of the more obscure like-kind exchanges cannot be processed by Asset Keeper in accordance with IRB 2004-14.  In those situations, we recommend that you elect out of IRB 2004-14 which is provided for in the provisions of this revenue bulletin.

It is important to note that when electing-out of IRB 2004-14, Asset Keeper processes a like-kind exchange similar to the same way it was processed prior to IRS Notice 2000-4.  That is, the relinquished asset is treated as if it were disposed without reporting the gain or loss and the replacement asset is recorded by adding the net book value of the traded asset to any boot that was paid.  If the replacement asset qualifies for bonus depreciation, it will be calculated on the BOOT only!  (Note that only the BOOT qualifies for bonus depreciation and Section 179.)

If you elect out of IRB 2004-14, you must print the following statement “Election Made Under Section 1.168(i)-6T(i)” at the top of IRS Form 4562 or in a manner provided in the instructions for IRS Form 4562.

If you would like to read the entire text of IRB 2004-14, you can use the following link  www.irs.gov/irb/2004-14_IRB/ar08.html

The following sections describe how you would implement the various provisions of IRB 2004-14 in Asset Keeper.  These options are selected on the Trade Asset’s screen, which is displayed when you click the Trade button on the Add / Edit screen toolbar or change the Status Code to “T”.
 

PERSONAL AND REAL PROPERTY NOT INCLUDING LUXURY AUTOS

 

EXCHANGED BASIS  (net book value of relinquished property)
 The general rule is that the exchanged basis is depreciated over the remaining recovery period of the relinquished MACRS property.   The following tables provide guidance regarding the recovery period and depreciation method to use for the relinquished asset.
 

Replacement asset has same or shorter recovery period.

Use the remaining life of the relinquished property.
Replacement asset has same or more accelerated depreciation method.

Use the depreciation method of the relinquished property.


Asset Keeper ALREADY does this!  This is the most common type of like-kind exchange encountered.  You should apply the provisions of IRB 2004-14 on the Trade Asset screen and these provisions will be applied.  The depreciation on the exchanged basis is the total of the following calculations.

1.  Calculate regular depreciation as if the asset was disposed.
2.  If bonus is taken on the carryover basis, calculate bonus depreciation on the adjusted basis (NBV after #1) according to the bonus percentage taken on the replacement asset.
3.  Calculate regular depreciation for the period from the date of disposal (trade date) to the end of the year using the adjusted basis (NBV after #1 and #2).

 

Replacement asset has a longer recovery period. Change the life of the relinquished property to the remaining life of the replacement property if it had been used when the relinquished asset was acquired.

Replacement asset has a more accelerated depreciation method.

 Change the method of the relinquished property to the less accelerated method.


Asset Keeper WILL NOT do this!  This type of like-kind exchange is rarely encountered in the real world.  We recommend electing out of IRB 2004-14 on the Trade Asset screen if you have this situation.  


EXCESS BASIS  (boot paid to acquire replacement property) Treated as property that is placed in service in the taxable year in which the replacement property is placed in service.

Asset Keeper ALREADY does this!  If you apply the provisions of IRB 2004-14 on the Trade Asset screen, the new asset created will be assigned a recovery period and depreciation method based the MACRS provisions that apply.


 

LUXURY AUTOS
 

LUXURY AUTO LIMITATION  In general, the depreciation limitation for the relinquished and replacement autos is limited to the replacement auto's limitation.

EXCHANGED BASIS  The depreciation for the exchanged basis is limited to the amount that would have been allowable had the transaction NOT occurred.

 

EXCESS BASIS  The excess basis is limited to the limitation that applies in the taxable year of the replacement less the amount allowed for the exchanged basis.

Order in which depreciation allowances are calculated…

  1. Regular depreciation on relinquished asset.
  2. AFY on adjusted basis of relinquished asset.
  3. Regular depreciation on the relinquished asset on the adjusted basis after claiming the AFY depreciation.
  4. Section 179 on the excess basis.
  5. AFY on the excess basis.
  6. Regular depreciation on the adjusted basis of the new asset.
     

Asset Keeper WILL NOT do this!  In general, because you are limited to one limitation on the relinquished and replacement asset, there appears to be no real benefit to applying these provisions, unless you really want to complicate the recordkeeping.  If you are trading a luxury auto, truck/van, or electric vehicle, Asset Keeper will only allow you to elect out of IRB 2004-14; which appears to be the easiest to implement and will normally result in the same total deduction.