this is a summary of the explanation from my book, had to do it really quickly hopefully it helps.
1. Is an involuntary conversion, treated like a like-kind exchange, you have to get the 1033 part from the auth lit. the realized gain on the involuntary conversion is 8,800. [71800 proceeds (per letter) – 63,000 adjusted basis of land given up(shown on depr schedule)]
The 8800 gain is recognized only to the extent of the 71800 cash proceeds are not reinvested in like kind property. Cost of replacement property is 72563 (they capitalized real estate taxes per memo). which exceeds the 71800 received so no gain is recognized. However since the gain is postponed a basis adjustment is required for the replacement property. Correct cost of replacement is 63763.
3. the manufacturing equipment the extended warranty is not a cost necessary to acquire the asset and prepare it for its intended use so it is not capitalized. Amount capitalized is the 205,600.
4. Reduce FMV of the new asset acquired, 32,300 as per the invoice, by the deferred gain of 6,912 that is part of this section 1031 like kind exchange. The deferred gain is the difference between the 32,300 in like kind property received and the 25388 in total consideration given up, which consists of the old van with an adjusted basis of 2088 (18125 cost – 16037 accumulated depreciation) plus the 23300 in cash paid.
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