The instructions you linked to are from one of our professional software products -- not intended for use with TurboTax.
A better link to get to the right portion of the interview screens is here: Where do I enter a like-kind or Section 1031 exchange (Form 8824)? If you are using TurboTax Desktop, you can search for topics by clicking on the Help menu option and choosing TurboTax Help Center -- or just by pressing F1. Type "like kind" and hit Enter (or Return, if on a Mac).
The option to start the like-kind exchange interview screens is the second-to-last item on the list. You can walk through the interview screens and refer to in-app help along the way.
However -- you'll still end up with the same question that you asked: What to do when the replacement property in a 1031 exchange it worth less than the property you are relinquishing?
One of the basic rules of a 1031 exchange is that the value of the property that you receive (the new or replacement property) must be at least as much as the value of the property being relinquished. If you give up a property worth $125,000 and you get a property worth $120,000 -- then the "missing" $5,000 must be accounted for. In your case, it will reduce the basis calculated for the new property. Depending on other answers, it could result in having to recognize gain on the difference.
If you were answering questions in Step-by-Step mode instead of directly in Forms mode, you would see that the description for that entry field that is showing an error reads: Cash received (include cash used for exchange expenses and not directly received). The following screen in the interview mode will ask you for the exchange expenses. These are specifically entered here, not used to adjust the fair market value of either property.
The difference in the FMVs (that is -- the "missing" cash that you "received") will reduce the exchange expenses by the same amount. Because your expenses are higher than the decrease in FMV between the properties, there will still be no taxable impact on this exchange. (You would have to recognize partial gain if your exchange expenses were lower than the difference in FMV between the properties.)
For example:
- Relinquished property: FMV is $125,000; adjusted basis is $75,000
- New property: FMV is $120,000
- Exchange expenses: $10,000
Basis in the new property:
Adjusted basis of old property: 75,000
- reduction in FMV: 5,000
+ exchange expenses: 10,000
= $80,000
[This is divided between Exchanged (Carryover) Basis of $75,000 and Excess (Additional) Basis of $5,000]
I hope this helps -- and recommend that you delete the Form 8824 that you created manually. Use the Jump To function to get to the 1031 interview screens. Or, look for the option in the "Sale of Business Property" topic under the "Less Common Business Situations" category.
[Edited: 7/31/2024 11:46AM PDT] @niubi
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