Form 8824 - Like-Kind Exchanges - 2004 (Page 2 of 2) in pdf

Form 8824 (2004)

Page

Example. A owns an apartment house with

replacement property, reduce your basis in

Do not enter more than the amount shown on

an FMV of $220,000, an adjusted basis of

the replacement property in the order it was

Form 6252, line 24 or 35.

$100,000, and subject to a mortgage of

acquired.

3. Also enter this amount on Form 4797,

$80,000. B owns an apartment house with an

line 15.

Line 30. Enter the amount you received from

FMV of $250,000, an adjusted basis of

the sale of the divested property, minus any

4. If all the ordinary income is not

$175,000, and subject to a mortgage of

selling expenses.

recaptured this year, report in future years on

$150,000.

Form 6252 the ordinary income up to the

Line 35. Follow these steps to determine the

A transfers his apartment house to B and

taxable installment sale income, until it is all

amount to enter.

receives in exchange B’s apartment house

reported.

1. Use Part III of Form 4797 as a worksheet

plus $40,000 cash. A assumes the mortgage

Line 22. Report a gain from the exchange of

to figure ordinary income under the recapture

on the apartment house received from B, and

property used in a trade or business (and

rules.

B assumes the mortgage on the apartment

other noncapital assets) on

2. Enter on Form 8824, line 35, the amount

house received from A.

Form 4797, line 5 or line 16. Report a gain

from Form 4797, line 31. Do not attach the

A enters on line 15 only the $40,000 cash

from the exchange of capital assets

Form 4797 used as a worksheet to your

received from B. The $80,000 of liabilities

according to the Schedule D instructions for

return.

assumed by B is not included because it

your return. Be sure to use the date of the

3. Report the amount from line 35 on Form

does not exceed the $150,000 of liabilities A

exchange as the date for reporting the gain. If

4797, line 10, column (g). In column (a), write

assumed. A enters $170,000 on line 18—the

the installment method applies to this

“From Form 8824, line 35.” Do not complete

$100,000 adjusted basis, plus the $70,000

exchange, see section 453(f)(6) to determine

columns (b) through (f).

excess of the liabilities A assumed over the

the installment sale income taxable for this

Line 36. If you sold a capital asset, enter any

liabilities assumed by B ($150,000 - $80,000).

year and report it on Form 6252.

capital gain from line 36 on Schedule D. If

B enters $30,000 on line 15—the excess of

Line 24. If line 19 is a loss, enter it on

you sold property used in a trade or business

the $150,000 of liabilities assumed by A over

line 24. Otherwise, subtract the amount on

(or any other asset for which the gain is

the total ($120,000) of the $80,000 of

line 23 from the amount on line 19 and enter

treated as ordinary income), report the gain

liabilities B assumed and the $40,000 cash B

the result. For exchanges with related parties,

on Form 4797, line 2 or line 10, column (g). In

paid. B enters on line 18 only the adjusted

see the instructions for line 7 on page 3.

column (a), write “From Form 8824, line 36.”

basis of $175,000 because the total of the

Line 25. The amount on line 25 is your basis

Do not complete columns (b) through (f).

$80,000 of liabilities B assumed and the

in the like-kind property you received in the

$40,000 cash B paid does not exceed the

exchange. Your basis in other property

Paperwork Reduction Act Notice. We ask

$150,000 of liabilities assumed by A.

received in the exchange, if any, is its FMV.

for the information on this form to carry out

Line 21. If you disposed of section 1245,

the Internal Revenue laws of the United

Section 1043

1250, 1252, 1254, or 1255 property (see the

States. You are required to give us the

instructions for Part III of Form 4797), you

Conflict-of-Interest Sales

information. We need it to ensure that you are

may be required to recapture as ordinary

(Part IV)

complying with these laws and to allow us to

income part or all of the realized gain (line

figure and collect the right amount of tax.

19). Figure the amount to enter on line 21 as

If you sell property at a gain according to a

follows:

You are not required to provide the

certificate of divestiture issued by the Office

information requested on a form that is

Section 1245 property. Enter the smaller of:

of Government Ethics (OGE) and purchase

subject to the Paperwork Reduction Act

1. The total adjustments for deductions

replacement property (permitted property),

unless the form displays a valid OMB control

(whether for the same or other property)

you may elect to defer part or all of the

number. Books or records relating to a form

allowed or allowable to you or any other

realized gain. You must recognize gain on the

or its instructions must be retained as long as

person for depreciation or amortization (up to

sale only to the extent that the amount

their contents may become material in the

the amount of gain shown on line 19), or

realized on the sale exceeds the cost of

administration of any Internal Revenue law.

2. The gain shown on line 20, if any, plus

replacement property purchased within 60

Generally, tax returns and return information

the FMV of non-section 1245 like-kind

days after the sale. (You also must recognize

are confidential, as required by section 6103.

property received.

any ordinary income recapture.) Permitted

The time needed to complete and file this

Section 1250 property. Enter the smaller of:

property is any obligation of the United States

form will vary depending on individual

1. The gain you would have had to report

or any diversified investment fund approved

circumstances. The estimated average time

as ordinary income because of additional

by the OGE.

is:

depreciation if you had sold the property (see

If the property you sold was stock

the Form 4797 instructions for line 26), or

Recordkeeping

1 hr., 38 min.

you acquired by exercising a

TIP

2. The larger of:

Learning about the

statutory stock option, you may be

a. The gain shown on line 20, if any, or

treated as meeting the holding

law or the form

27 min.

b. The excess, if any, of the gain in

periods that apply to such stock, regardless of

Preparing the form

59 min.

item 1 above over the FMV of the section

how long you actually held the stock. This may

Copying, assembling, and

1250 property received.

benefit you if you do not defer your entire gain

sending the form to the IRS

33 min.

by allowing you to treat the gain as a capital

Section 1252, 1254, and 1255 property. The

gain instead of ordinary income. You must have

If you have comments concerning the

rules for these types of property are similar to

sold the stock after October 22, 2004. For

those for section 1245 property. See

accuracy of these time estimates or

details, see section 421(d) or Pub. 525.

Regulations section 1.1252-2(d) and

suggestions for making this form simpler, we

Temporary Regulations section 16A.1255-2(c)

would be happy to hear from you. See the

Complete Part IV of Form 8824 only if the

for details. If the installment method applies to

instructions for the tax return with which this

cost of the replacement property exceeds the

form is filed.

this exchange:

basis of the divested property and you elect

1. See section 453(f)(6) to determine the

to defer the gain. Otherwise, report the sale

installment sale income taxable for this year

on Schedule D or Form 4797, whichever

and report it on Form 6252.

applies.

2. Enter on Form 6252, line 25 or 36, the

Your basis in the replacement property is

section 1252, 1254, or 1255 recapture

reduced by the amount of the deferred gain.

amount you figured on Form 8824, line 21.

If you made more than one purchase of

Form 8824 - Like-Kind Exchanges - 2004 Page 2

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