You can generate Form 8824, Like-Kind Exchanges (also known as section 1031 exchanges) from the Depreciation screen or the Schedule D/4797/etc. screen in ProConnect Tax. These steps will walk you through entering like-kind exchanges in the Depreciation screen, including instructions on creating new assets.
If the like-kind assets aren't being depreciated, refer to this article for instructions on entering like-kind exchanges in the Schedule D screen.
Where to find the depreciation screen in each return type:
- Individual: Deductions > Depreciation
- Partnership: Ordinary Income > Depreciation (4562)
- S-Corporate: Ordinary Income > Depreciation (4562)
- Corporate: Deductions > Depreciation
- Fiduciary: Deductions > Depreciation
- Exempt organization: Expenses > Depreciation
Follow these steps to generate Form 8824 from the Depreciation screen:
- Go to the Depreciation screen.
- In the Quick Entry grid, locate the asset that was given up in a like-kind exchange.
- Click the blue Details button to expand.
- Click the three dots at the top of the screen and select Disposition.
- Locate the General Disposition Information section.
- Enter the Date sold, disposed, or retired (MANDATORY).
- Enter any Expenses of sale or exchange incurred.
- Scroll down to the Like-Kind Exchanges (8824) section.
- In the Property Received subsection, enter the following fields:
- Description
- Date property identified
- Date property received
- FMV of like-kind property
- Enter any Cash and Loan Amounts or Other Property Given (not like-kind), if applicable.
- Click the method you would like to use to create new assets below to continue.
The simplified method (recommended)
With the simplified method, no asset tracking or linking is required. No carryover basis or boot assets are created, because you're allowed to create and depreciate the new asset based solely on the calculated basis of the property you received (Form 8824, line 25). It's one asset out/one asset in bookkeeping. The election to use the simplified method doesn't affect Form 8824—it only affects how new assets are set up to account for the property received. See Regulation 1.168(i)-6 for details.
Follow these steps to use the simplified method:
- Under the Like-Kind Exchanges (8824) section, locate the Choose How to Create New Asset(s) subsection.
- Check the box labeled Simplified method - elect to not create carryover basis assets.
- Under the Election Information section, complete any applicable fields.
- An election statement will print with the return and be attached to the e-file.
- Go to the Check Return tab.
- Make sure that Form 8824 is generating correctly.
- Select Suggestions from the left side of the screen.
- Look for a suggestion beginning with "Depreciation asset: The election to not apply...".
- The suggestion will recommend the basis amount and date placed in service to use for the new asset acquired in the exchange.
- Go to the Input Return tab.
- Go to the Depreciation screen.
- Enter the new asset acquired, using the amounts from step 7.
Applying the like-kind exchange regulations (if not electing the simplified method)
When you choose not to elect the simplified method, IRS regulations require you to track two components of the asset received: carryover basis and boot. The adjusted basis of both of these components sums to equal the full basis of the property received (Form 8824, line 25).
Carryover basis
For MACRS properties given up in a like-exchange, ProConnect Tax will automatically create a carryover basis asset for depreciation purposes. The carryover basis is defined as the lesser of the adjusted basis of the property given up or the basis in the property received. For the depreciation calculation in the year of exchange, the program will add-back the amount of depreciation claimed on the property given. If the basis of the property received should be used, a suggestion will generate specifying that an override should be entered in Carryover basis [Override]. A suggestion will generate indicating that a carryover basis asset was created.
Boot
The boot, also called incremental investment or excess basis, refers to the basis of property received that exceeds the carryover basis. Not all like-kind exchanges will involve excess basis. ProConnect Tax will generate a suggestion recommending the basis amount and date placed in service to use for the boot, and how to link the boot asset to the carryover basis asset for tracking in future years.
Follow these steps to apply the like-kind exchange regulations:
- Go to the Check Return tab.
- Make sure that Form 8824 is generating correctly.
- Select Curr Year Depr (Regular) from the left side of the screen to view the depreciation schedule.
- Make sure that the carryover basis asset appears.
- By default, the program will name the carryover asset "Description of property received - C/O Basis," although the description may be cut off due to a character limit.
- Click on Suggestions from the left side of the screen.
- Follow the instructions in the Suggestions to enter the boot as a new asset on the Depreciation screen, if applicable.
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