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    Like kind exchanges including depreciation methods

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    Bonnie purchased a new business asset (5-year property) on 03/10/06, at a cost of $20,000. She also purchased a new business asset (7-year property) on 11/20/06 at a cost of $13,000. Bonnie did not elect straight-line recovery. Determine the cost recovery deduction for 2006 these assets?

    David owns a warehouse that is used in business while Gloria owns land. David exchanges the warehouse for the land which will be held for investment. The FMV of the warehouse is $240,000 (basis $100,000) and the warehouse is subject to a mortgage of $50,000 which is assumed by Gloria. David receives $40,000 cash and the land which has a FMV of $150,000 ( basis of $130,000 to Gloria). David realizes a gain (loss) on the exchange of?

    Jermaine traded a truck with an adjusted basis of $4,000 and a FMV of $6,000 for another truck that had a list price of $11,500. Jermaine also paid an additional $4,000 and was eligible for a $500 rebate that will be mailed to him in four weeks from date of purchase (same year). What is Jermaine's basis in the new truck?

    On Dec 31, of the current year, Judy sells an apartment building for $620,000 which had been used as residential rental property. The apartment building cost of $700,000 and was placed in service on January 1, 1985. Judy had taken depreciation deductions of $230,000 under the ACRS method. Straight-line depreciation would been $200,000. As a result of the sale, Judy must recognize?

    Kelly purchased residential rental property for $650,000 on January 1, 1986, and total ACRS deductions for 1985 through the date of sale amounted to $230,000. If the straight-line method of depreciation had been used, depreciation would have been $140,000. The property is sold for $525,000 on January 1 of the current year. The amount and character of the gain is?

    In 1986, Gary purchased a factory building to use in business for $600,000. when Gary sells the building for $750,000, he has taken depreciation of $160,000. Straight-line depreciation would have been $100,000. Gary must report?

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    Solution Preview

    Bonnie: using standard cost recovery percentages which you can view on page 13 of the Form 4562 instructions in the IRS website, the 5 yr asset will have 20% depreciation and the 7 yr assets will have 14.29% depreciation: $4000 + $1858.

    David: Like kind exchanges are allowable between investment properties, the definition of which includes both land and buildings. David received the following: cash $40, release from debt $50, land $150. Total of the 3 items = $240K. The only one of the three which is a like kind exchange is the land of $150. ...

    Solution Summary

    The solution explains the rationale for six different tax problems involving depreciation, sales, and like kind exchanges.