We had an interest in an Apartment Building DST which we treated as an independent piece of real estate investment property that we filed a Schedule E for every year. The sponsor sold the building on 7/20/2023. In early 2024, we received from the sponsor the annual tax document for 2023. The tax document listed our share of the amount of "Liabilities at Closing" as $125,587.
Also in 2023, within a week after the sponsor sold the building, we did a 1031 exchange into another DST apartment building investment opportunity.
In completing the Schedule E for this investment, and the Form 8824 for the 1031 Exchange, I did not see any place/entry field to use this "Liabilities at Closing" number. I am assuming that this is a balance sheet number. It is not to be used for depreciation or amortization, or to be listed as an expense. Should I be using this number somewhere in the Schedule E or 8824, or is just given to us for our information?
Thank you in advance for your assistance.
There are too many details unknown at this point, and a forum such as this is not conducive to collect the necessary information and then provide a response.
You should have a discussion with the DST handling the transaction.
Unless a qualified intermediary was used for the transaction, there is a good chance you may not qualify for the like-kind deferral.
Thanks Rick for your response. We have done more than a few 1031 Exchanges and use a registered representative for our DST purchases, who helps guide us. And always use a Qualified Intermediary. So we have no worries about our exchange qualifying for the deferred capital gains tax treatment.
This was just the first time that I have paid attention to the liabilities on the balance sheet at the closing, only because the DST sponsor for the relinquished property did not provide a balance sheet but did provide just that one number, our portion of the liabilities at closing.
Thanks again, Think57
While limited facts, I am fairly certain there is no tax impact on the liabilities figure provided to you.
Hi Rick. Think I figured it out. While the "Liabilities at Closing" number is not used in the Schedule E, it is used in the 8824 Tax Form for the Like-Kind Exchange. This number is usually the loan outstanding of the relinquished property and Turbo Tax prompts for the "Value of mortgages/loans transferred or paid off as part of sale" in the step by step process for a Like-Kind Exchange.
Thanks again, Think57
You have mentioned you have done this in the past, so I assume you are comfortable completing the Form 8824. You only mentioned liabilities, but there are other components that I hope were provided to you as well for completing the 8824?
While there are no current tax implications, this does impact the deferral and ultimate tax liability.
Hi Rick. Yes, we were given all the information needed to complete the 8824. This is our sixth 1031 Like-Kind Exchange. The new twist this year for Form 8824 is the request for the basis of Like-Kind Section 1250 property and 1245 property received.