Question

I own an Exotic Car I use to advertise my business.

Adjusted Basis (AB) = $100,000 and Fair Market Value of $250,000

I swap with you for your Exotic Car you use to advertise your business.

Adjusted Basis (AB) = $200,000 and Fair Market Value of $250,000

What are the tax consequences to each of us on this exchange?

This is a taxable exchange unless the transition rule under Code Section 1031 applies. What is the transition rule? Where would you find it? What information do you need?

Answer 1

No gain or loss shall be recognized on the exchange of real property held for a productive use in trade or business or for investment if such real property is exchanged solely for real property of like kind which is to be held either for productive use in a trade or business or for investment purposes. Adjusted basis is how much value is added or subtracted to the property in the form of improvements or depreciation whereas Fair Market Value is the estimation by the governmnt or other entities which determine the worth of the property.

Taxable Exchange = Adjusted Basis (You)- Adjusted Basis (I)

= $200,000 - $100,000

= $ 100,000

The exchange qualifies for non taxable exchange treatment under Code Section 1031.

A transition rule in the new law provides that section 1031 applies to a qualifying exchange of personal or intangible property if the taxpayer disposed of the exchanged property on or before December 31, 2017, or received replacement property on or before that day.