How do I report a 721 transaction in turbo tax?

[VK2020]

I've owned shares in a rental DST for over 3 years. Now the DST sponsor wants to do a 721 transaction to contribute the DST assets into an Operating Partnership and issue OP Units (Operating Partner Units) afterwards.  K-1's will be issued instead of 1099's after the721 transaction is complete.  My question is: How do I report this in turbo tax?  How do I report that I stop using the rental DST and move on to the OP Units?  Are there specific forms to use to report this?

[Anonymous_]

There may or may not be a significant change, but that can only be determined by contacting the sponsor of the DST directly who, in turn, should be able to provide you with the necessary tax guidance.

Since DSTs operate much like limited partnerships, there might not be much of a change beyond exactly how reporting is done in the program (e.g., entry from an issued K-1 (1065) versus a 1099-MISC).

[VK2020]

Thanks for the reply.  The DST sponsor will indeed work with individual investor to, at the very least, transfer the individual's cost basis info of the contributed assets to the K-1.  My question, specifically, is how do I make the transition from reporting the  DST income under the "Rental Properties and Royalties" category (1099-MISC) to the "Business Items" category (1065)?  I assume  the DST entry under the "Rental Properties and Royalties" category must be removed since I stop using it under that category.  But how do I PROPERLY remove it?  What's the disposition? It's not a sale since I didn't sell it, it merely got transferred/contributed to the new partnership.  Looks like there's a section under "Asset/Depreciation" where I can indicate that I stopped using the asset but I am not sure if it's the right place for this.  Some guidance on how to navigate this in Turbo Tax would help.  Also, even after properly removing the DST from "Rental Properties and Royalties", there still seems to be some missing steps to link-up the new partnership with the terminated DST.  Unlike a 1031 exchanges where Turbo Tax does have built-in sections for, I didn't find anything similar for 721 transactions.  That's why I had previously asked whether there's a specific form to report 721 transactions. If not,  then I guess I must provide my own statements to provide details of the the missing link?

[Anonymous_]

You might want to contact phone support for this scenario, particularly if you are using an online version of TurboTax.

What is the TurboTax phone number? (intuit.com)

Otherwise, I do not believe there is some sort of method of linking the two (Schedule E and partnership K-1); you might simply have to indicate that you converted the property to personal use to remove it from your Schedule E. However, you might also want to include an explanatory statement with your return (which typically requires that the return be printed and mailed).

[puzzled_landlord]

I have the exact same problem as described here.

Has there been any new work done in the online Turbotax to address this issue?

I was hoping to continue using online Turbotax, but cannot if there is not a clear way to

declare the 721 exchange out of properties (1099, Schedule E) into OP units (K-1).

Please advise.

[Anonymous_]

You can contact Support (link below), but I do not believe anything new has been done to address this issue (which would most likely be considered an enhancement).

What is the TurboTax phone number? (intuit.com)

[kmenace450]

The replacement property you receive in a 721 exchange is a new entity that will issue s K-1.  You do not link the relinquished DST to the new partnership you acquire in the 721 exchange.  You  indicate on the DST depreciation schedule that you ceased use of that asset but enter no sales price, it is like a trade.  

If you found out otherwise please post on here.

I am trying to figure out if I have to do a 8824 exchange form for this. 

[puzzled_landlord]

Thanks for your post. If you get any further in this topic, could you please post what you find out? I exhausted all my leads and am still unsure how I delink from the relinquished DST. Thanks for the follow-up.

[kmenace450]

I don't understand your issue with linking.  Can you be more specific?  I don't think you enter the 1099 it there is one from the sale of the DST. When you got the partnership to replace the DST you would have given the sponsor information on your tax basis in the DST, so that is all reported on the K1.  There is no sale to report.  I don't know if there is a statement needed to attach to the return or not. I am still searching for that information and asked a tax expert friend. If you linked something you should be able to go back in and de link it. 

[puzzled_landlord]

You are right that the DST contribution to the partnership was not "a sale" and I did not receive any 1099 for a "sale". I appreciate your posting stuff you find out on this topic. I hope I did not mis-report the 721 transaction.

[VK2020]

I've spoken to an acquaintance who's CPA but he's not familiar with 721 transactions so he asked an associate who is for me.  There does not appear to be a specific tax form to report the 721 transaction.  Rightly or wrongly, for my tax return I simply provided a statement regarding the 721 transaction.  I stated that the 721 transaction is not a sale and therefore non-taxable,  that the DST will no longer be reported  on my schedule E and that a K-1 will be reported instead.  I mailed in my return this year but don't think they've processed it as of yet due to their huge backlog of unprocessed main-in returns (since the pandemic).

[puzzled_landlord]

Thank you for the extra detail.

Just 1 more question.

Did you purchase the DST originally as a straight cash investment from savings?

[VK2020]

No, it was residual funds from a 1031 Exchange.

[puzzled_landlord]

So your DST was acquired through a 1031 exchange?

If so, then you must have an 8824 form showing the 1031 exchange and a deferred gain when you acquired the DST.

I believe thia 8824 remains attached to your tax record year after year.

So I don't know how you remove it since you stopped owning the DST recorded on it.

[kmenace450]

You only attach the 8824 in the year you do your exchange, you do not attach it each year, unless you had a related party transaction and then I believe you attach it for 2 more years.