Like-kind exchanges for IRS Notice 2000-4 and Reg. 1.168(i)-6

Alerts and notices

Notice 2000-4

On 1/5/00, the IRS issued Notice 2000-4. This notice for a proposed regulation offers guidance on depreciating MACRS property acquired in a like-kind exchange through either a trade or casualty/theft.

In recognition of IRS Notice 2000-4, when you acquire a MACRS asset through a like-kind exchange from 1/2/00 through 2/27/04, the application creates a replacement aggregate asset that summarizes the component assets.

Illustration of like-kind exchange following IRS Notice 2000-4.

Aggregate assets consist of the following items.

  • A component for depreciating the portion of the basis that is related to the adjusted basis in the exchanged or involuntarily converted property. This component is set up to depreciate in the following ways.
    • From the same date in service as the original asset.
    • Over the same remaining recovery period as the original asset.
    • Using the same depreciation method and convention as the original asset.
  • A component for any excess of the basis in the acquired MACRS property over the adjusted basis in the exchanged or involuntarily converted property that is depreciated as newly purchased property.

After the application creates the aggregate asset, the component asset's Depreciation tab is not available. To view summary information for the aggregate asset, choose Tasks > Display Calculation. To access the Depreciation tab for a component asset, choose Edit > Component, and then choose the component's description from the cascading menu.

For more information on how the aggregate replacement asset is set up, see the Like-kind exchanges tax assumption.

For treatments that follow IRS Notice 2000-4, the cost/basis of a replacement asset includes the original asset's entire cost/basis. If you use the Property Detail report in Fixed Assets CS for personal property tax returns and want the cost of replacement assets to be the adjusted basis of the original asset, perform one of the following tasks.

  • Print the Book Property Detail in Fixed Assets CS without changing the default for the Book treatment, which is not set up to follow IRS Notice 2000-4.
  • Set up another treatment that does not follow IRS Notice 2000-4 and print the Property Detail report for that treatment.

    Note: You should leave the default (not to follow IRS Notice 2000-4) for the Book treatment unchanged if you use any of the following applications.

    • UltraTax/California Personal Property Tax
    • UltraTax/District of Columbia Personal Property Tax
    • UltraTax/Florida Personal Property Tax
    • UltraTax/Georgia Personal Property Tax
    • UltraTax/Indiana Personal Property Tax
    • UltraTax/Kentucky Personal Property Tax
    • UltraTax/Maryland Personal Property Tax
    • UltraTax/Michigan Personal Property Tax
    • UltraTax/Nebraska Personal Property Tax
    • UltraTax/North Carolina Personal Property Tax
    • UltraTax/South Carolina Personal Property Tax
    • UltraTax/Texas Personal Property Tax
    • UltraTax/Virginia Personal Property Tax
    • UltraTax/Wisconsin Personal Property Tax

A replacement aggregate asset (which is created through the like-kind exchange of an existing aggregate asset) contains a continuation component asset for each component asset contained in the aggregate asset that is being replaced. There may also be an additional component asset for any boot given up in the like-kind exchange.

Limitations

IRS Notice 2000-4 resulted in the following limitations.

  • Prior depreciation comparison is not available for any luxury auto or electric vehicle that is part of an aggregate asset.
  • Section 280F limitation calculation is not available for aggregate assets.

Reg. 1.168(i)-6

On 2/28/04, the IRS issued Temporary Reg. 1.168(i)-6; this regulation became final on 3/1/07. The regulation offers guidance on depreciating MACRS property acquired in a like-kind exchange through either a trade or casualty/theft.

In recognition of Reg. 1.168(i)-6, when you acquire a MACRS asset through a like-kind exchange after 2/27/04 the application creates a replacement aggregate asset that summarizes the component assets.

Illustration of like-kind exchange following Reg. 1.168(i)-6

Aggregate assets consist of the following items.

  • A component for depreciating the exchanged basis of the relinquished property that is carried over to the replacement property. (The exchanged basis is the lesser of the basis in the replacement MACRS property, as determined under section 1031(d) and Regulations under section 1031(d), or the adjusted depreciable basis of relinquished MACRS property.) This component is set up to depreciate in the following ways.
    • From the same date in service as the original asset.
    • Over the same remaining recovery period as the original asset.
    • Using the same depreciation method and convention as the original asset.
  • A component for any excess of the basis in the acquired MACRS property over the adjusted basis in the exchanged or involuntarily converted property that is depreciated as newly purchased property.

For treatments that follow Reg. 1.168(i)-6, the cost/basis of a replacement asset includes the exchanged basis of the relinquished asset.

After the application creates the aggregate asset, the component asset's Depreciation tab is not available. To view summary information for the aggregate asset, choose Tasks > Display Calculation. To access the Depreciation tab for a component asset, choose Edit > Component and then choose the component's description from the cascading menu.

For more information on how the aggregate replacement asset is set up, see the Like-kind exchanges tax assumption.

Limitations

Reg. 1.168(i)-6 resulted in the following limitations.

  • Prior depreciation comparison is not available for any luxury auto or electric vehicle that is part of an aggregate asset.
  • Section 280F limitation calculation is not available for aggregate assets.
  • Tables are not used to calculate depreciation for components of aggregate assets that are created from like-kind exchanges following Reg. 1.168(i)-6. If tables are selected, the relinquished asset component will calculate using the formula calculation.
  • Trades for property with a longer recovery period or a less accelerated depreciation method are not currently calculated.

Other information

General

  • By default, all treatments except Book follow IRS Notice 2000-4 for trades made from 1/2/00 through 2/27/04. All treatments except Book follow Reg. 1.168(i)-6 for trades made after 2/27/04. There are four treatment options for handling trades.
    • Do not follow Notice 2000-4 and Reg 1.168(i)-6

      Note: If this option is selected and the trade occurs after 2/27/04, the application marks the Treat entire basis as a current year acquisition (Election 1.168(i)-6(i)) checkbox on the Disposal tab. When this checkbox is marked, a statement prints with Form 4562.

    • Follow Notice 2000-4; Reg 1.168(i)-6 after 2/27/04.
    • Follow Reg 1.168(i)-6 after 2/27/04; do not follow Notice 2000-4.
    • Follow Reg 1.168(i)-6 after 1/2/00.

      See Modifying the Book treatment (or any other treatment) to follow IRS Notice 2000-4 and Reg. 1.168(i)-6 for more information.

  • A replacement aggregate asset (which is created through the like-kind exchange of an existing aggregate asset) contains a continuation component asset for each component asset contained in the aggregate asset that is being replaced. There may also be an additional component asset for any boot given up in the like-kind exchange.
  • To see detailed component asset information organized by asset number, print the Federal Aggregate Asset Detail report, which can be selected in the File > Print Returns > Options > Selected Pages tab.
  • Aggregate assets can be copied to a different activity. For example, if the assets in a rental unit are disposed through a like-kind exchange, then the replacement asset will be created in the original rental unit. The asset may then be copied to a new or different unit.

Aggregate assets

  • For aggregate assets, the Tasks > Display Calculation dialog contains an Aggregate asset detail group box that lists each component asset. The information in the bottom half of the dialog pertains to the component asset that is highlighted in the Aggregate asset detail list.
  • Luxury auto limits are applied at the aggregate asset level. If you view component asset information, the amount in the Current Depreciation field is not affected by the auto limit. If you override current depreciation for a luxury auto, the automatic calculation for luxury auto limitations is turned off. When you advance to a new processing period, the limited amount of depreciation from the prior year is added to the prior depreciation.

Component assets

  • The amount of current depreciation taken for the continuation component asset from a like-kind exchange is adjusted by the amount of current depreciation taken on the original asset.
  • Unless the original asset in the like-kind exchange was purchased in the current year, the continuation component assets are not included in the current-year mid-quarter calculation or in the current-year section 179 limitation calculations.
  • If the component assets have different methods and lives, the application uses the methods and lives of the component asset that was placed in service most recently.