turbotax icon
cancel
Showing results for 
Search instead for 
Did you mean: 
turbotax icon
cancel
Showing results for 
Search instead for 
Did you mean: 
turbotax icon
cancel
Showing results for 
Search instead for 
Did you mean: 
turbotax icon
cancel
Showing results for 
Search instead for 
Did you mean: 
Announcements
Event: Ask the Experts about your refund > RSVP NOW!
Close icon
Do you have a TurboTax Online account?

We'll help you get started or pick up where you left off.

david022
Returning Member

How to calculate and data entry for 2 piece depreciation for 1031 exchange

I did a 1 to 2 1031 exchange.  Spent hours and finally figured it how to enter the deferred gain on TurboTax.  I need help in calculating the depreciation for the 2 replacement properties.

 

Here are the relevant information:

Relinquished property basis for depreciation:  347,801

Date in service:  7/4/2018

Sold in 5/31/2023

 

Replacement properties (2 rental properties):

Total basis for both:  564,664

FMV:  850,000

 

I read about the 2 pieces for depreciation, just does not know how to calculate and how to data entry in TT.

 

Any assistance is greatly appreciated.  

 

 

Connect with an expert
x
Do you have an Intuit account?

Do you have an Intuit account?

You'll need to sign in or create an account to connect with an expert.

1 Reply
DianeW777
Expert Alumni

How to calculate and data entry for 2 piece depreciation for 1031 exchange

The following guidance is how you enter a 1031 exchange in TurboTax and will provide guidance for the current and new assets for depreciation.

 

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 for $100,000, 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 would be exactly the same, and does not change! 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).

  • To change from one asset to two assets: It makes sense to create an entry so that you show two properties since you exchanged one property for two properties. 
    • Using the original cost basis of the property given up (you will use the fair market value (FMV) of each property received in the exchange divided by the total FMV of both properties received, then multiply that percentage by the original cost basis, of the property given up.  Next enter two rental properties with the same placed in service date as the property given up. Use this for all assets you have in connection to property given up, such as capital improvements, etc.

If you "bought-up" in your exchange (your New Property cost more than you sold your Old Property), the answer is easy – you treat the buy up part as you would a new addition to an existing property. In other words, you treat the amount of the buy-up the same as you would the cost of construction, for example, of a garage added to an existing house – the cost is the amount of the buy-up; the date you start depreciating it is the date you purchased the new property; and the depreciation method you use is the method most appropriate for that type of property in the year you bought the New Property (regardless of the method you used for the original house). If you think of it this way, then it's easy, even if your property is a large office building or a more complex purchase.

When you have your TurboTax return open you can use the following steps to update the original assets for the exchange.

  1. First use the Search (upper right) > Type rentals > Press enter > Click on the Jump to... link
  2. Or Wages & Income Rental Properties and Royalties > Update > Continue to Rental and Royalty Summary > Edit the property
  3. Scroll to Assets/Depreciation  > Click Update > Select 'Edit' next to each asset
  4. Edit beside each asset > Continue to the Tell Us About This Rental Asset
  5. 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.
  6. 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)
  7. 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.
  8. Answer 'Yes' to Special Handling. ***

Next you will complete the like kind exchange, Form 8824 (Section 1031 exchange):

  1. Use the Search (upper right) > Type like kind > Press enter > Click on the Jump to... link
  2. Select the checkbox beside 'Any additional like-kind exchanges (section 1031)' > Continue
  3. Complete the information for the 'Real estate given up'  and 'Like-Kind Property Given Up' > Continue
  4. Name the event > Continue > Complete the information for the 'Like-kind property received'
  5. If you did not give unlike property in the exchange click 'No' and  continue past these screens, if 'Yes' answer the questions.
  6. Enter any exchange expenses (sales expenses) > Continue to see your deferred gain.

If you marked the original assets as sold, traded, etc (see 6. above) then go back to your rental activity and then enter new assets with the exact same information as the property given up with a new name, but with the same date placed in service as the old property, for all assets that are part of the exchange.

 

Enter a new asset for any buy up/added cash in the exchange including the purchase/selling expenses you paid in the trade. The new asset will begin depreciation on the completion date of the trade/like kind exchange.

 

@david022

[Edited: 02/21/2024 | 6:19 AM PST]

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
message box icon

Get more help

Ask questions and learn more about your taxes and finances.

Post your Question
Manage cookies