Dispose of a section 1245 asset as a Like-Kind Exchange

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With the TCJA tax law changes, like-kind exchanges (LKE) are no longer applicable for section 1245 property after 12/31/17. For Book purposes and for clients with state treatments of CA with a disposal date before 1/11/19, AR, IA, IN, MA, or NH for tax years beginning 2018 and later, those clients will be able to dispose section 1245 assets as a like-kind exchange.

In order for 1040 CA clients with less than $250,000 for a single filer or $500,000 for a joint filer with a disposal date after 1/10/19 to follow 1031 Pre TCJA you need to go to Setup > Treatment options for the CA treatment and mark the Follows 1031 Pre TCJA after 1/10/19 – Less than 250,00/500,000 option.

Note: If more states decouple from TCJA we will release a CS Connect update to allow the state to dispose of a section 1245 asset as a like-kind exchange.

To dispose of a section 1245 asset as a like-kind exchange for Book or state purposes for tax years beginning in 2018, you first need to have either the Book treatment set up to follow 1031 Pre TCJA or have an applicable state treatment calculating on the asset.

Follow these steps to set up the Book treatment to follow 1031 pre TCJA.

  1. In the Asset module, go to Setup > Treatments.
  2. Mark the box for the Book treatment.
  3. With the Book treatment highlighted, select Options.
  4. Mark the checkbox Follows 1031 Pre TCJA.

Follow these steps to dispose of a section 1245 asset as sold/scrapped for tax purposes and like-kind exchange for Book/state purposes.

  1. Open the Asset List window for an activity.
  2. Select the asset you want to dispose of and click the Modify button.
  3. In the Asset Detail dialog, click the Disposal tab.
  4. Select Sold/Scrapped as the disposal method.
  5. Enter the disposal date.
  6. Mark the Personal property exchange checkbox.
  7. Click the State/Other LKE Information button to complete data entry for the like-kind exchange, then select OK to close the dialog.

    Note: This screen will automatically open when you have Follows 1031 Pre TCJA option selected or when a non-conforming state is added as a treatment.

  8. Enter the disposal information for tax purposes on the Disposal tab.
  9. Enter a description of the asset in the Replacement for tax box (unless you want to use the default name).
  10. Enter the Federal tax cost basis that should be used when the new asset is created.

The Asset module will create a new asset using the date disposed as the date in service for the new asset, and calculate the cost basis for the applicable Book or state treatments based off of the like-kind exchange information.

Note: You cannot mass dispose of section 1245 assets using Sold/Scrapped for federal purposes and like-kind exchange for Book or state treatment purposes.

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