J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

6.2 Personal Property Held for Business or Investment

Gain on an exchange of depreciable tangible personal property held for productive business or investment use is not taxed if the properties meet either the general like-kind test (6.1) or a more specific “like-class” test created by IRS regulations. The assumption of liabilities is treated as “boot” (6.3). Where each party assumes a liability of the other party, the respective liabilities are offset against each other to figure boot, if any.

Under the like-class test, there are two types of “like” classes: (1) General Asset Classes and (2) Product Classes. The like-class test is satisfied if the exchanged properties are both within the same General Asset Class or the same Product Class. A specific asset may be classified within only one class. Thus, if an asset is within an Asset Class, it is not within a Product Class. The Asset Class or Product Class is determined as of the date of the exchange. This limitation may disqualify an exchange when exchanged assets do not fit within the same Asset Class and are not allowed to qualify within the Product Class; see the Brown Example below.

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Planning Reminder

The “Like-Class” Test for Depreciable Tangible Property

Gain on an exchange is not taxed if the exchanged properties are either “like kind” or “like class.” The like-class test is satisfied if the exchanged ...