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Video instructions and help with filling out and completing Where Form 4797 Exchanged

Instructions and Help about Where Form 4797 Exchanged

Hello and welcome to the session and which would look at the basis and a like-kind exchange so before we before you keep going with this lecture if you don't know how to calculate realized gain recognized gain please take a look at the click on the prior lecture which is should be on the top and look at the prior lecture to understand how like-kind exchanges work how to calculate the realize this is what we learn in the prior session realized recognized and obviously the post pwned okay we looked at those three terms realized recognized and postponed change so if you don't know what these are and how we calculate them this will not make any sense to you okay but let's look at the formula and see how it works and try to make some sense out of it by working some examples the basis in the like-kind property so how do we calculate the basis and a like-kind property can a like-kind property okay and what we do is one way to do it to calculate the basis of the new asset let's take the fair market value of the new asset okay fair market value of new - gains not recognized gains not recognized means what it means oops be careful don't confuse recognized with not recognized this is not recognized means post pwned gain so this is gain that's not recognized plus lost not recognized what is lost not recognized because some students they see are recognized and they know not recognized it means plus postponed loss okay so this is a formula to calculate the basis in new property or a new asset now if you are receiving boot the basis in the boot is the fair market value of the boot itself so the boot it's easy just the fair market value of the boot move on okay so this is the those are two formulas now there's another formula we're going to look at it in a moment which is a more expanded formula which is the the IRS formula in case boots the boots is involved but we'll look at it later but if we can understand this formula how does it work it will be easier for us to look at the other formula so what are we saying is this just for the sake of simplicity let's assume the fair market value of the new asset is 15,000 15,000 this is the fair market value of the new asset then we're going to either have a wrecking ball gain or a postponed loss any postponed gain gain that we have not recognized any not recognized equal to postponed I know I said this or equal to the third I know I said this but it's important to to do it again what is that gonna do the game that's not recognized now will be recognized later how do we reflect this we reflect this by reducing the basis of the new ones let's assume the NAM recognized was 3000 so now the new basis is 12,000 so the basis went down the basis of the new property went down why now when it's down when we select later the basis are down the basis are low or lower then the gain will be higher let's assume we had a postponed loss let's assume we started with 15,000 then we add a postponed loss of let's assume 5,000 we had a postponed loss of 5,000 now the basis is 20,000 the basis went up does that make sense sure the losses because you did not took advantage of the losses now the losses will increase your basis so when you sell this asset later your basis are higher than 15 they are 20 so your gain will be lower so you took advantage of the losses later and this is what they RS is trying say a field not if you are not taxed on the gain now lower your basis and you will be taxed on it later when you sell this asset make sense if you did not take advantage of the loss now increase your basis right increase your basis and when you sell this asset your gain will be lowered therefore your tax will be lowered so this is basically what we are saying in this formula and the best way to kind of show this is to work an example so we have Jain exchange a building used in a business with an adjusted basis of 30 so we have adjusted basis equal to 30 and a fair market value of 38 for the land with a fair market value of 38 so we gave 38 you receive 13 the land to be held as an investment the exchange qualifies as a like-kind okay that's fine an exchange of a business for an investment that's good so an exchange of a business real property an investment property that's good securities are not good but those are good so this is a like-kind exchange so what is the basis well the basis is what here what we have we have a gain of 8,000 the gain of 8,000 in this gain is realized but not recognized this gain is realized but not recognized why not because because Jamey did not receive any boot so yes Janie had a gain but none of it is recognized because there is no boot involved okay so how do we calculate the basis what's the formula let me erase all of this let's fill in some figures here before using this formula we said the fair fair market value of the land that we are receiving is 38 then we have a postponed gained of 8,000 so guess what the basis is 30,000 so the basis is lower than the fair market value is this good well it's good for now I was not taxed on this.

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