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1031Me
Returning Member

How to move carryover loss from old property to new property after 1031 exchange?

In 2018 I exchanged a property for another property thru 1031 exchange.

 

This year, the old property's unallowed loss is listed separately from the new property.

 

First question: Do I need to add this loss to the new property and get rid of the other property in the tax forms, or do I leave it the way it is and TurboTax will continue to use (accumulate) the losses in the future?

 

Second question: If I do add it to the new property, where do I do that?

 

Thanks for your help.

7 Replies
AmyC
Employee Tax Expert

How to move carryover loss from old property to new property after 1031 exchange?

The 1031 exchange allows you to completely close out the property you sold. Everything from the sold property will move into the new property.

 

The IRS says:

How do you compute the basis in the new property?

It is critical that you and your tax representative adjust and track basis correctly to comply with Section 1031 regulations.

Gain is deferred, but not forgiven, in a like-kind exchange. You must calculate and keep track of your basis in the new property you acquired in the exchange. 

The basis of property acquired in a Section 1031 exchange is the basis of the property given up with some adjustments.  This transfer of basis from the relinquished to the replacement property preserves the deferred gain for later recognition.  A collateral affect is that the resulting depreciable basis is generally lower than what would otherwise be available if the replacement property were acquired in a taxable transaction. 

When the replacement property is ultimately sold (not as part of another exchange), the original deferred gain, plus any additional gain realized since the purchase of the replacement property, is subject to tax.

 

For complete 1031 information, please see this link.

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astridwilson
Level 2

How to move carryover loss from old property to new property after 1031 exchange?

Is the gain avoided if you eventually make the exchanged property your primary residence?

KrisD15
Employee Tax Expert

How to move carryover loss from old property to new property after 1031 exchange?

No, the gain is eliminated only if inherited. 

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DJFAULDS
Returning Member

How to move carryover loss from old property to new property after 1031 exchange?

Amy:

 

I was advised by Turbotax to add the loss carryover from the old property to the new property. However, when I viewed my form 8582 I saw that both properties had now the loss carryover.

Is there a better way to transfer the loss carryover from a sold (1031) property to a new property?

AmyC
Employee Tax Expert

How to move carryover loss from old property to new property after 1031 exchange?

@DJFAULDS The purpose of the 1031 is to defer paying taxes on the gains. If you have a loss, I don't know why you would do a 1031 exchange. But, you have your reasons. Since it is done, you would need to carry that loss into the new building. The old building would be marked as sold. Property that has been disposed of, no longer carries a loss. 

 

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DJFAULDS
Returning Member

How to move carryover loss from old property to new property after 1031 exchange?

Thank you Amy for your insights, just to recap:

I have a significant capital gain deferred by using a 1031 exchange. The losses are from operating the rental activity over the years and are all passive losses carryforward each year. I already marked the old building as disposed under a 1031 exchange, but on the 8582 PAL form, it allocated the losses for the year and then added a small loss for the new building (so far so good). I was then advised to input the loss carryover from the old building in TT to the new building. Now the form 8582 has recalculated the carryover losses on both buildings, nothing in TT automatically transferred the old building losses to the new building. Seems wrong but can't get good help from TT!

ReneeM7122
Level 8

How to move carryover loss from old property to new property after 1031 exchange?

@DJFAULDS Just to let you know, you might not receive an answer to your question because it falls under the category of an out of scope topic.   Here is a link to the TurboTax service agreement.

 

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