Combining property expense info of 1031 exchange in column A of Schedule E

[thompsam]

I have a summer beach rental that I have just 1031 exchanged in October.  Since the property only rents in the summer, if I create schedule Es for both the relinquished and replacement properties, Turbo Tax tells me to delete the replacement property schedule E since there will be no days rented in this tax year.  A side product of this is that any 2020 expenses associated with the replacement property, taxes, HOA fees, etc. cannot be claimed and the replacement property gets classified as a

In 2005, When I acquired the property I just exchanged in 2020, it was done as part of a 1031 exchange..  When I look at the schedule E that was filed in 2005, my professional tax preparer only used column A on the schedule E and combined the expenses from both of my relinquished and replacement properties.  This approach enabled me to claim all the expenses in 2005 from both properties even though one of them had zero rental days/income in 2005.  Would the IRS still accept this approach in 2020 or have the tax laws changed such that I'm required to enter both properties separately in column A and column B on my schedule E which is what Turbo Tax encourages me to do?

[pk]

@thompsam ,  (a) there are  really no section 1031 related changes that have been enacted recently.  Note however that 1031  is only a mechanism  for  and reporting of  exchanging one asset for another like-kind, it  has nothing to do with recognition of income and expenses associated with the asset  ( from a purist standpoint).

(b) once the exchange has been consummated, the reporting of income and expenses (schedule-E in your particular case ) must conform to the actual acts and circumstances i.e.  in my purist view,  the yearly return must recognize  the existence of both the properties -- I say this because  in actual fact the  expenses  and earnings for each property  occurs  ONLY during  ownership of that property -- thus you should not claim expenses  of the new property on the  old/relinquished property , even though tax wise it may not make a difference but artifacts  are not real and you are claiming that as true  and it is not.

(c) my suggestion would be to declare the property B  ( the  new property ) as a new property with its own  earnings  ( zero in your case ) and expenses & depreciation etc.  This is because  even when you do not have a renter, it is still available for rent  i.e. if somebody want to rent this in December ( very unlikely ) for a good amount , you would not refuse that, would you?  The property is still rental property  and not a second home/personal use property.

That is where I stand on this --- I do not believe  any of the superusers would disagree with me on this.

[M-MTax]

Sticking with the method your tax pro used would be the safest bet.

[Critter-3 · Accepted solution]

First you're using an unfinished beta version of the 2020 program so it will not work correctly until at least January. Next it is a new property and should be listed as such. And the trick to getting the schedule e to stay is to put one day of rental use in the program. Although it sounds wrong to put in one day when there was zero days rented it is what you have to do to get the schedule e to populate and stay.

[pk]

@thompsam  , the point of @Critter-3 's reply is   (1) you must report  each property as such  and not combine  the  two properties  and (2) there is a way to get TurboTax to comply.  I am loath to say anything about another tax professional  ( even though I have retired from the profession some time ago ), but .......

[thompsam]

Thanks for the input.  i am actually using the 2019 version of TT and using 2019 dates for everything just to get a feel for what the process is like and to see what happens if I don't get a Dec, 2020 rental.  I tried your suggestion of claiming 1 rental day and zero rental income and  sure enough, this approach does cause the expenses from the property to stick in column B on the Schedule E.  

In your comment you said it "sounds wrong" but the key question is - Will the IRS will consider this approach legal (1 rental day, zero rental income) if I were to get audited.  Is it?

[Critter-3]

No it is not really wrong ... those "rental days" are for statistical purposes more than anything else.  If you are ever audited you can explain the seasonal nature of the rental.  

[thompsam]

Thanks Critter, I appreciate it.