Investors & landlords

The answers are provided below in the order of your questions.

1. Depreciation Rules: 

   You continue the depreciation as though there was no trade. Then with any extra cash that was paid for the replacement property (the property received in the exchange) you set up a new asset and begin depreciation in 2020 as residential rental property using 27.5 year recovery period (depreciation method).

    

   If you buy up in your exchange (your New Property cost more than you sold your Old for), the answer is easy – you treat the additional cash part as you would a new addition to an existing property. In other words, you treat the amount of the buy-up the same as you would the cost of a capital improvement.

2. The like-kind Section 1031 entry should be completed as follows:

   1. With your return open in TurboTax, search for like kind (2 words, no dash)  > Press Enter > click the "Jump to" link at the top of your search results.

   2. This will take you to Any Other Property Sales? Check the second-to-last box from the bottom for like-kind and section 1031 exchanges and click Continue.
   3. On the next screen, answer Yes and proceed through the interview questions. We'll fill out Form 8824 for you.

   • Note: If you accidentally generated a Form 8824 that you don't need, you can delete it by repeating steps 1 and 2 above. This takes you to the Like-Kind Exchanges summary screen where you can then delete the unwanted form. 

     • What is a like-kind (Section 1031) exchange?

        

3. You are required to file an Alabama (AL) return if as a nonresident your income is over the allowable prorated exemption (full year resident amounts are $3,000 for married filing jointly and $1,500 for single).  AL Instructions
   • Prorated generally means the AL income divided by the total income (or taxable income).