Have a 1031 exchange on rental property. Have entered the data in TT. The "sale of property" was answered with "like kind exchange". Stills as taxable income. Now what?

[JJ-43]

Have seen the advice from TT, which I followed. But TT still shows this gain as taxable income, even though it says it is deferred. How do I correct this? What flag/switch did I miss?

[MarilynG1]

You are correct that the Gain on a 1031 Exchange is postponed.

It is easy to miss something entering this into TurboTax.  There are rules for a property transaction to meet 1031 which include needing an intermediary and you could never have received proceeds. 

Many things do not qualify for like kind exchange rules, so be careful claiming it.

Click this link for detailed instructions on Entering a Like Kind Exchange.

[JJ-43]

Yes, I have made sure that I did not own both properties at the same time, and I did use an intermediary on both sides of the transaction.  And I went back, and checked what you suggested.....I jumped to the 1031 exchange in TT, and said "yes" to the question.  I filled out the data for the 8824.  At the end of the Exchange screens, the gain does show up as a deferred gain.  But the entire gain is still showing up in TT as a taxable capital gain under business income, and the tax bill is huge.  And that is not right!  So there must be a flag or a switch somewhere in here that I've missed.  The gain is showing up on Schedule D, the 4797, Any thoughts on what I can do next?

[MarilynG1 · Accepted solution]

Check your input under the section Business Income, Less Common Business Situations, Sale of Business Property. 

Only the box on the bottom for additional like-kind exchanges should be checked.  If the box on top, sales of business property is checked, you may also have entered it as a sale. 

If you continue further, it should take you to a screen that shows Sale of Business Property (Copy 1).  If information was entered there, you probably have to delete it (Copy 1) because that's producing Form 4797 and Schedule D. 

As you continue further in this section, you should see the like-kind gain previously entered, which should be the only input in this section.

[JJ-43]

Thanks!  That worked!  The deferral looks correct now, and the "gains on sale" are gone.

So, now TT has created a new basis for the replacement property in this Exchange.  That's fine, I understand that.  But....the property tax records for 2019 for the new property reflect values for land and buildings separately.  The old property did not make that separation (was a different county).  Do I now still need to adjust the TT basis for the new property to pull the County's land value out, ie, lower the TT new basis by the County's land value? 

[RobertG]

Yes you do, you can't depreciate land.  

If the county land vs improvements percentage seems reasonable, you can go with that.

Otherwise, you should get it appraised.

[vernm46]

I have a 1099 S for 2016 for a rental property sold.  Box 1 shows the date.  Box 2 shows 0.  The transfer agent held the funds until the following year. I did buy a like kind property in 2017. The 1099 S form states that I need to file form 4797.  Property is a 1031 exchange. Following your guide I never arrive at the form 4797

[DianeC958]

When you fill out the information for the 1031 exchange TurboTax automatically creates and fills in the information for the form 4797.  

You should see this form included with your tax return.