How do I enter my replacement properties from an exchange in TT desktop?

[corinneL]

I did a 1031 exchange of 1 rental property ($750, acquired 1994) for 2 rental properties in 2024 ($790k for both).  I have entered the 8824 info and have a basis in the replacement property ($338K), my exchanged basis ($254 for both properties) and my excess basis ($83k for both).  I have calculated the % allocation of each replacement property.  I need to enter the replacement properties as 2 separate Schedule E assets for in TT desktop. And I have a question on the 8824 entries.

Prior recommendations on the forum state that the relinquished asset should be carried over to keep track of the accumulated depreciation and a separate asset for the Excess basis entered.  In 2024 TT desktop, when I enter the relinquished asset, enter the exchanged basis ($124k), and check "traded in an old asset to acquire this one", a box to enter the Excess basis amount pops up.  I put in the excess basis amount ($83k) and enter the asset.  When I check the Asset listing, the Excess basis is not reflected, nor is it on the depreciation schedule. 

Question: Where does it go?

Question:  Should I add the complete Basis of the Like Kind property received ($338k from 8824, line 25) in the Asset's Cost field and also enter the excess basis ($83k) when asked? and then not enter the excess basis separately?  Would I still need to track the original cost and accumulated depreciation separately for future sales or exchanges?

or,

do I enter 2 separate assets 1. the relinquished asset, check traded asset...., enter the excess basis when asked, and 2. the excess basis as a separate asset.

Finally, the instructions for 8824 say that in a multi-asset exchange, I should enter this on lines 12-15.  This exchange involved only real property (1250) and cash paid to acquire the replacement properties in excess of boot.  Where do I enter the explanation of the 1 relinquished property for 2 replacement properties and how they are allocated for basis? 

[DianeW777]

First, it's important to know the relinquished assets do not change per se'. You can change the name or convert them to personal use. If you want to enter new assets to help you track the section 1031 property, then you can say they were taken out of service or converted to personal use. I might recommend using 01/01/2024 as the conversion date to eliminate excess depreciation expense. Also enter 'Yes' to special handling.

Yes you will enter two assets since you received two for one.  Use the information below to make the change.

Enter the new assets with the same date acquired as the original property and cost except you now have split that to represent two new properties. This is also acceptable as long as you convert the old property as indicated above. And as you indicated you have additional assets for additional buy-up paid on the exchange. Again, you will split this for each property however the date acquired is the date of the 1031 exchange and depreciation begins in 2024, just as if a capital asset was acquired and placed in service. It must be 27.5 year property. Step-by-Step:

1. Scroll to Assets/Depreciation  > Click Update > Select 'Edit' next to each asset
2. Edit beside each asset > Continue to the Tell Us About This Rental Asset
3. Select the checkbox beside 'This item was sold, retired, .... traded in ....etc. > enter the date it was traded (sold/retired)
   1. You can choose not to select this and just change the name of the assets given up in the trade to identify them with the new property. The depreciation for the year will not change on these assets.
4. Answer the question about whether it was 100% business > Leave the original date it was placed in service (may be purchase date or later depending on your circumstances)
5. Continue to the screen 'Confirm Your Prior Depreciation'  
   • The amount displayed is only for prior years and does not include the current year. 
   • Continue until you see the current year amount displayed and make a note to add the two amounts together for the Section 1031 like kind exchange.
   • This completes the asset portion of the trade.

Depreciation Rules:

The basic concept of a 1031 exchange is that the basis of your Old Property rolls over to your New Property. In other words, if you sold your Old Property, and bought your New Property for the same, your basis on the New Property would be the same. It makes sense then that your depreciation schedule should be exactly the same, which it is! In other words, you continue your depreciation calculations as if you still own the Old Property (your acquisition date, cost, previous depreciation taken, and remaining un-depreciated basis remain the same). In your case it would be easier to separate the property into two assets because you did receive two for one. This is explained above.

• IRS Fact Sheet for Section 1031 Exchange
• IRS Instructions for Form 8824

Where do I enter the explanation of the 1 relinquished property for 2 replacement properties and how they are allocated for basis? 

As you indicated you did not receive 'boot' and did buy-up in this exchange. That section is for gain, which would only occur if you received boot. 

• Boot: Any property or money you might have received that is unlike property in the exchange would be immediately subject to capital gains tax

Keep all worksheets for depreciation and assets as well as your 8824 with your tax files.

[corinneL]

That makes sense.  The relinquished property has assets with acquired dates, some of which are still depreciating.  

Should I add the still depreciating assets separately?  

Are they considered traded assets or purchased assets?  If traded, what do I put in the Excess Basis field?

[DianeW777]

Yes, be sure to enter any assets (still depreciating) already on your return if you removed them. The original assets are now considered the replacement assets.  Only the 'buy up' amounts should be new assets with an date placed in service as the date of the exchange (2024).

Do not use the 'excess basis' field add the 'buy up' as a completely separate and new asset. You must enter the additional asset yourself. This information is not transferred any where or used for calculations.  See the note in the 'Learn More' link below.

• Here, we're just asking how much cash you paid to acquire the item, above and beyond any other costs associated with the item. Also include any loans taken out on the item. This is the excess basis amount.

@corinneL 

[corinneL]

I also have an asset in this exchange where section 179 was applied.  

asset purchase $ 3007

purchase date 2/7/22

sect 179 amount $ 3007 

Depr Basis 0

TT desktop will not let me enter the sec 179 amount of 3007.  TT is also asking for depreciation type but there was none.

How do I fix?

[DianeW777]

There is no need for concern. Keep the information in your current tax file each year until you dispose of your final property without an exchange. This information will become a taxable event at that time. Record keeping is the key and not whether an asset fully depreciated is actually in the current tax return, even though it is easier for your to keep track of it.

@corinneL