1031 Exchange glitch in Turbo Tax

[alienbm]

When using the Self Employed version of TT and adding a 1031 property exchange I found a glitch I could not get by. After entering information for my relinquished property and my newly acquired like kind property, I get a prompt to enter amounts for" Different Property Received". This is for cash or other property received that are not directly reflected in the properties sold and purchased. Here it is not possible to enter zero.  Even though I had no property or money received other than what is declared in other parts of the form. Any help in getting past this prompt with a 0 (or blank responses) would be appreciated?
BTW this appears to be a query to populate IRS form 8824 line 15, which I need to be 0.
Thanks for any insights.

[tagteam]

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@alienbm wrote:

Thanks for any insights.

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I am not sure how insightful you will consider this, but the prompt to which you referred (and cannot pass) typically occurs when the fair market value of the replacement property is less than that of the relinquished property. 

For whatever it is worth, I tried inputting a few variations into TurboTax Home & Business (sort of the installed analog to Self-Employed) and did not encounter any issues.

If you would like to post numbers (even if hypothetical), I, and others, can attempt to reproduce your results.

[alienbm]

Thanks for that observation. I discovered that you are correct. 
Because my relinquished property is valued at 276K, and my new property is valued at 375K, and I am taking a 121K loan on the new property, TT apparently sees a deficit of 22K that I am not accounting for. 
However, TT is apparently not including the 18K in sales and legal expenses that I enter later for Sale Expenses, nor nor is there an accounting of the 3K is closing expenses for the new purchase. Nor does TT ask what amount I invested from the sale property into the new property (258K). So while in reality I took no money away, and invested all of the sales proceeds into the new property, I can not get past the Different Property Received prompt without entering 22K,  Then TT wants to tax me on 22K.  
So other ideas welcome about how to use TT for the 1031 exchange and not pay tax I clearly am eligible to defer.  Thanks much for your patience with the details.  

[ramonlim]

I am running into this same issue.  Any insight?

[alienbm]

Unfortunately my problem was a year ago so my memory is not sufficient. But I think I just compensated for TT lack of formula function by just forcing the correct balance with the end amounts upfront, anticipating that my expenses would not be include. Hoping you get what I mean. Good luck. 

[ramonlim]

Thank you.  Unfortunately, a year later the problem still persists.  thank you for the response.

[bn1977]

Sure looks like a bug to me.  How do we get TurboTax to investigate and fix?  There may be multiple problems, but one thing is that for the sale property, you enter the FMV and the loan payoff.  TT appears to assume that the difference between the two was cash out to invest in the exchange.  So a FMV of 300K with a loan payoff of 100K means 200K cash out.  When you enter the purchase FMV (larger than the earlier FMV) and loan assumed, if that difference is less than 200K, then TT assumes there must have been cash received.  If you can get past the screen with the bug, THEN it asks for sales expenses.  Ummm, my cash in hand was reduced by the sale expenses, so I didn't get 200K out to invest in the exchange property.  Sale expenses should have been considered when determining the cash available to invest in the exchange.

[AmyC]

Sales expenses are part of your basis. Paying off a loan is irrelevant  when selling a property. The cost basis of the new property = cost of new property - deferred gain from original property.  The purchase and selling expenses that are allowed are considered part of the original cost in the following example for simplicity.

For example:

• Buy building A, original cost $250,000, depreciated $150,000, sold $400,000
• if sold, A would have gain of $300,000 but instead did a 1031 exchange.
• Buy building B for $500,000.
• Cost basis for new property B is $500,000 -  prop A gain $300,000 = $200,000

The adjusted basis of building A is the exchange basis.

Excess basis = cost basis for new property  - adjusted basis of building A

For example:

• Building A adjusted basis is $250,000 -dep $150,000 = $100,000 = exchange basis
• Building B $500,000 purchase price
• Excess basis = purchase -exchange
• Excess = $500,000 - $100,000 = $400,000 excess basis

The adjusted cost basis is the purchase price minus the deferred gain from the property sold. 

From my example above:

Cost basis for new property B is $500,000 -  prop A gain $300,000 = $200,000

See also:

• Where do I enter a like-kind or Section 1031 exchange (Form 8824)?
• What is a like-kind (Section 1031) exchange?
• IRS 8824 Instructions
• Another post of mine with pictures to help with entry

[79761]

Amy C - 

For like-kind exchanges: What line number on form 8824 does the answer to TT's question: "Fair Market Value of the like-kind property you gave up" populate? I had an accountant complete a 8824 with my actual numbers and the only way I can get the expected outcomes to work out in TT is to use the number from 8824 line 17 to answer that TT question and that doesn't seem correct per the form's instructions. 8824 doesn't even ask for the FMV of the like-kind property I gave up... Please help!

[DaveF1006]

In looking at the instructions for form 8824, the only thing to report is the adjusted basis of the property given up in line 18. line 12 is the only FMV property given up and according to the instructions, you are only suppose to make an entry here if this is other property exchanged that didn't qualify as like-kind property. If this line is blank on the 8824 form given to you by your accountant, then it is not and should not be reported.

Like-kind exchange information on the 8824 should reflect the FMV for the property given and adjusted basis for the property given up. 

@79761

[grandpadave]

FYI loan payoff does matter with 1031 exchange: the IRS cares about how much cash you got from the reliquished property and wants to make sure it goes back into the replacement property. 

[kashblack1953]

I am encountering the same issue with TurboTax Home & Business for 2022, and the response you gave doesn't seem to answer the question. If one assumes the sales price of the property given up as the FMV for the property given up and the purchase price of the replacement property as it's FMV one gets the error message described above. Apparently TurboTax is ignoring the sales & closing costs when deciding that when the replacement FMV is less than the property given up FMV resulted in some excess cash floating around. Is TurboTax assuming that the actual proceeds (sales price less commission & closing costs) are the FMV?

[kashblack1953]

From my experience, TurboTax doesn't investigate and fix anything, instead they have an army of customer service people who try to work around these bugs that persist year after year.

[malletshop]

line 15 is only for an assumed loan. It's not asking if you borrowed a new loan. If you did not assume a loan from seller, enter zero. That will result in a no gain or 'boot'.