Example of a Like-Kind Exchange

In January 2018, XYZ Manufacturing traded a building they had purchased in 2003, along with $45,000 in cash, for a similar building with a Fair Market Value (FMV) of $80,000. The information regarding the exchanged buildings is as follows:

Old Building:

Cost:	$80,000
Accumulated Depreciation:	30,684
Net Book Value	$49,316

 

XYZ Manufacturing, Inc. calculates the basis of the new building received in the exchange as follows:

New Building:

	Net Book Value of original building	$49,316
plus	Cash paid	45,000
	Basis of newly acquired building	$94,316

 

Under the IRS guidelines, for depreciation purposes the corporation has two buildings on its books:

• Building #1 has a placed-in-service date of 2003, an acquired value of $80,000, accumulated depreciation of $30,684, and a recovery period of 39 years. It continues to be depreciated as if it were the original building.
• Bulding #2 has a placed-in-service date of January 2018, an acquired value of $45,000 ($94,316 minus $49,316), and a recovery period of 39 years. It is depreciated as a newly acquired asset.