I sold a rental condominium and used the proceeds/gains to purchase both another rental condominium and a commercial building. The gains were sufficient to purchase both. I sold in August 2019, bought the new rental condo in October 2019, and the Commercial Building on February 2020. Thanks.
@Carl wrote:
Exchanging a residental rental property for a commercial rental property is not a valid like-kind exchange.
Incorrect.
Provided the real property is held for productive use in a trade or business or for investment, residential rental real estate can be exchanged for commercial rental property and gain deferred under Section 1031.
See Treas. Reg. §1.1031(a)-1(b)
For the transaction you described, you needed to use a qualified intermediary in order to have a valid Section 1031 (like-kind) exchange (See Treas. Reg. §1.1031(b)-2).
You cannot directly, or constructively, be in receipt of funds from the sale of the relinquished property if you want to defer gain under Section 1031.
Thank you. Yes, I did use an Accommodator (qualified intermediary). I just was not sure how to enter the data into TurboTax. The accommodator split the funds into two exchanges, one in 2019, other in 2020.
@arsalind You can initially follow the instructions in the following TurboTax Help article.
Further, there are several threads on entering such transactions into TurboTax, but they are long, drawn out, and somewhat fragmented. You can also contact Support as you might be able to reach someone who can walk you through entering the transaction into TurboTax properly.
Quite frankly, I would suggest that you use a tax professional, who has experience with like-kind exchanges, for guidance and/or income tax preparation for the tax year in which the transaction occurred in order to ensure the transaction is reported correctly.
I agree ... this is not a DIY project and you will need to use the downloaded version and make overrides in the FORMS mode which will void the accuracy guarantee and stop you from efiling. Seek professional assistance this time.
Thanks folks for your insights and feedback. I'll use an accountant this time.
Exchanging a residental rental property for a commercial rental property is not a valid like-kind exchange. Since a 1031 exchange is required to be handled by a 3rd party intermediary to be valid, they should have informed you it's not a valid exchange. If they did not, then I would question their expertise in 1031 exchanges. I would also seek professional help from a local CPA familiar with tax reporting of a 1031 exchange. For your situation, this is not a DIY project by any stretch of the imagination.
@Carl wrote:
Exchanging a residental rental property for a commercial rental property is not a valid like-kind exchange.
Incorrect.
Provided the real property is held for productive use in a trade or business or for investment, residential rental real estate can be exchanged for commercial rental property and gain deferred under Section 1031.
See Treas. Reg. §1.1031(a)-1(b)