Where Form 4797 Exchanged 2024-2025

Hello and welcome to the session. We will be looking at the basis and like-kind exchange. Before we continue, if you don't know how to calculate realized gain and recognized gain, please refer to the prior lecture. In the previous session, we learned about realized, recognized, and postponed exchange. If you are unfamiliar with these terms and how to calculate them, this will not make sense to you. Let's examine the formula and try to understand it better by working on some examples. To calculate the basis in a like-kind property, we can use the formula: fair market value of the new asset - gains not recognized + losses not recognized. It's important to remember that "not recognized" means postponed gain or postponed loss. If you receive a boot, the basis in the boot is simply its fair market value. There is another, more expanded formula provided by the IRS, which we will discuss later. However, understanding this formula will make it easier to grasp the other one. For simplicity's sake, let's assume the fair market value of the new asset is $15,000. If we have a postponed gain of $3,000 that is not recognized, the new basis would be $12,000. On the other hand, if we have a postponed loss of $5,000, the new basis would be $20,000. This is because postponed gain not recognized will be recognized later, so it reduces the basis. Similarly, postponed loss not recognized will increase the basis, taking advantage of the losses when the asset is eventually sold. The IRS aims to tax you later on the gain you didn't pay tax on initially, and lower your tax liability if you didn't take advantage of the loss earlier. Let's look at an example to illustrate this concept. We have a like-kind exchange between...