I sold a rental property, did a 1031 exchange, and purchased a replacement rental property. I am having trouble reporting the whole process to TurboTax, in particular the sale of the old rental property.
- Under Business Items, Sale of Business Property, I enter the like-kind exchange information. This produces the underlying Form 8824 for the exchange and it seems to have good information on it, including the deferred gain and basis for the new rental property.
- Under Rental Properties and Royalties (Sch E), I enter the information for the new rental property, using the basis calculated from the previous (like-kind exchange) section. It seems to calculate the correct depreciation for the new property taking into account the new basis and the fraction of the year the property was in service.
I am running into confusion when trying to report the sale of the old property.
- Under Rental Properties and Royalties (Sch E), I go through the Property Profile information, I DO NOT check the box that says I sold the property as the instructions for that step say to leave the box unchecked when I do a like-kind exchange.
- In the Assets/Depreciation section, I navigate to "Your Property Assets"
- I continue to the question "Did you stop using the asset?" and I answer Yes since the property was taken out of rental service.
- When prompted, I enter the date of the sale (or disposition).
- Eventually, I get to a Sales Information dialog for entering Prices and Expenses for both Assets and Land.
Now, what should I enter for the Sales Information here?
If I enter sales data here, the underlying forms create a Schedule D and Form 4797 showing the gain from the sale of the old rental. This seems like an error as the gain is not being deferred and it's creating a huge tax burden on that gain.
Should I leave this Sales Information section blank, since it was reported in the 1031 like-kind exchange section (Form 8824)?
This seems like this is the way to go as it simply adjusts the depreciation to a partial year and does not create a Schedule D and Form 4797.
I appreciate any advice on how to enter this information correctly. It seems a little convoluted.
Thanks.
Randy
