1031 DST Exchange

[AnitaMargarita51]

Sold a rental duplex in September 2021 that we'd owned since June 1979. Did a 1031 DST Exchange with Qualified Intermediary and all the appropriate time rules of 45 days to identify property and 180 days to purchase. It was completely depreciated and completely paid for. Finally found the right checkbox on TT so made it through those questions so that we have no taxable gain and TT created the 8824 forms. Since the two sides of the duplex were placed in service at different times, we've always had two entries or Schedule E for each side. We also exchanged properties into two separate properties though they're not quite equal in cost. For one relinquished property I used the larger sale, but only a percentage of our interest so that the replacement property seems to be half the sale price. For the other relinquished property I used the remaining interest of replacement property one and then the full amount of replacement property 2. All the numbers fit and work okay so I think I'm okay with what I've done. We did receive a statement (not a 1099 or K-1) from replacement property two for a partial passive income paid us in December (this property closed on November 15, 2021). I created a Schedule E to cover that passive rent and expense of replacement cost. (I did the replacement cost there, because TT wouldn't let me put it on the 8824.). That shows I have a small loss on that property. A week ago I got a form that the email said is a K-1 for the replacement property one. No where on the form does it say it's a K-1 (just in the email from the company). We have not received any passive income from it yet as it pays quarterly (we closed on it November 23, 2021) though the "K-1" shows a loss. So I created another Schedule E for that property showing the % interest we own in it. Now it, too, shows a small loss. We live in one state and the duplex was in another so I've done a separate state return every year, this being the last one. Will I need to do a state return for the two replacement DST 1031 properties? This year they both show a minor loss so I'm thinking I will next year, but I should be okay for this year.  Is there anything I should have done differently?  My fingers are crossed that I've done all this mumbo-jumbo okay, but TT is showing a high Audit risk. 

THANKS for any help. 

[AmyC · Accepted solution]

It sounds like you have done a great job! Each state has its own filing requirements so you will need to check requirements each year to determine if you need to file a state return. The audit risk meter would be high due to the activity in your return. A person with one w2 will have a much lower audit risk than someone with a rental, who has a lower risk than you with multiple rentals and sales. As long as you have your records and how you came up with what you did (as stated above), you are fine.

The email that isn't really a k-1 is a bit disconcerting. Having not seen it, I have to trust you as you seem highly intelligent. A few questions to the issuer never hurt.