First, it's important to know the relinquished assets do not change per se'. You can change the name or convert them to personal use. If you want to enter new assets to help you track the section 1031 property, then you can say they were taken out of service or converted to personal use. I might recommend using 01/01/2024 as the conversion date to eliminate excess depreciation expense. Also enter 'Yes' to special handling.
Yes you will enter two assets since you received two for one. Use the information below to make the change.
Enter the new assets with the same date acquired as the original property and cost except you now have split that to represent two new properties. This is also acceptable as long as you convert the old property as indicated above. And as you indicated you have additional assets for additional buy-up paid on the exchange. Again, you will split this for each property however the date acquired is the date of the 1031 exchange and depreciation begins in 2024, just as if a capital asset was acquired and placed in service. It must be 27.5 year property. Step-by-Step:
- Scroll to Assets/Depreciation > Click Update > Select 'Edit' next to each asset
- Edit beside each asset > Continue to the Tell Us About This Rental Asset
- Select the checkbox beside 'This item was sold, retired, .... traded in ....etc. > enter the date it was traded (sold/retired)
- You can choose not to select this and just change the name of the assets given up in the trade to identify them with the new property. The depreciation for the year will not change on these assets.
- Answer the question about whether it was 100% business > Leave the original date it was placed in service (may be purchase date or later depending on your circumstances)
- Continue to the screen 'Confirm Your Prior Depreciation'
- The amount displayed is only for prior years and does not include the current year.
- Continue until you see the current year amount displayed and make a note to add the two amounts together for the Section 1031 like kind exchange.
- This completes the asset portion of the trade.
Depreciation Rules:
The basic concept of a 1031 exchange is that the basis of your Old Property rolls over to your New Property. In other words, if you sold your Old Property, and bought your New Property for the same, your basis on the New Property would be the same. It makes sense then that your depreciation schedule should be exactly the same, which it is! In other words, you continue your depreciation calculations as if you still own the Old Property (your acquisition date, cost, previous depreciation taken, and remaining un-depreciated basis remain the same). In your case it would be easier to separate the property into two assets because you did receive two for one. This is explained above.
Where do I enter the explanation of the 1 relinquished property for 2 replacement properties and how they are allocated for basis?
As you indicated you did not receive 'boot' and did buy-up in this exchange. That section is for gain, which would only occur if you received boot.
- Boot: Any property or money you might have received that is unlike property in the exchange would be immediately subject to capital gains tax
Keep all worksheets for depreciation and assets as well as your 8824 with your tax files.
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