1031 Exchange - Capital Gains

[jtellier]

No matter how I handle the 1031 Like-Minded exchange, if I report a rental property as sold, it taxes my gains. Is there a more in depth video or instruction to follow to make sure the sale of one property and the purchase of another is properly filled out with a 1031 exchange?

[tagteam]

How, exactly, are you entering this transaction in TurboTax?

You should start by entering the words "like kind" in the search box and clicking the "Jump to..." link. Doing so will take you to the starting point for entering a 1031 exchange.

Further, if you are reporting a property as "sold" rather than exchanged, then the program will calculate gain on the transaction rather than deferral. 

[jtellier]

It asked if I stopped using it and "sold" was the option and seemingly the only one that seemed to fit. Do I not not enter information for "Asset Sales Price" on the Sales Information screen?

[jtellier]

Any update on this? My return should be what it is before I put in that sale, the instructions on the Like Minded Exchange are not straight forward.

[tagteam · Accepted solution]

@jtellier You should probably contact Support at this point since they have successfully been able to walk some users through the procedure of entering a 1031 (like-kind) exchange.

https://ttlc.intuit.com/community/using-turbotax/help/what-is-the-turbotax-phone-number/00/25632

[harpermeek692]

I posted the long answer below to a similar question.  The short summary is that you do not report the sale while entering rental information in Section E, and you select exchange property under sale of business assets.  In more detail :

The interview guidance is confusing and incomplete.  For an exchanged property, the form 8824 interview and form does not link back to the schedule E and correct ( partial year) depreciation, and does not calculate or link basis for the exchange as reported on the form 8824

If you have entered assets in previous years to track depreciation, you must manually calculate the current partial year depreciation and override the amount in the Schedule E.  Do not enter sales dates for the assets; if you do the program will create corresponding form 4797, and report related gains and losses AS IF NO 1031 Exchange occurred.

Then  report the 1031 exchange under sale of business property.  Be certain to check the box 'any additional like kind exchanges" and the program will prompt data entry for the 8824 form.  You will need to manually calculate the basis for the exchange, likely this will include partial year depreciation from manually adjusted Form 4592 Depreciation and Amortization reports, and data entered for the property on schedule E.  There might be a gain or loss from the exchange, depending on the specific details of your exchange.

If you open forms mode, the 8824 form has a link to a specific Schedule E property. I have never figured out what this does, but it does not cause the assets for the property to correctly report partial year depreciation, and link the resulting basis to the 8824.

Multiple calls to support has not resolved this.  I find the interview incomplete and it tried to lead me to significant errors.  The link on the form 8824 appears broken, but again, I've failed to resolve this with Turbo Tax Support.

This is a complex tax issue, Turbo Tax does not handle it automatically and the interview does not warn you properly to calculate and override certain entries, so if you're not comfortable with it I suggest you'll need to find and pay for some expert help beyond Turbo Tax...

Further more, for the property received in exchange, once you have properly completed the 8824 form, you will have the basis for the new property.  This is most likely not the purchase price.   You need to go back to the schedule E and enter this new property, using this basis for future depreciation.

[harpermeek692]

The interview guidance is confusing and incomplete.  For an exchanged property, the form 8824 interview and form does not link back to the schedule E and correct ( partial year) depreciation, and does not calculate or link basis for the exchange as reported on the form 8824

If you have entered assets in previous years to track depreciation, you must manually calculate the current partial year depreciation and override the amount in the Schedule E.  Do not enter sales dates for the assets; if you do the program will create corresponding form 4797, and report related gains and losses AS IF NO 1031 Exchange occurred.

Then  report the 1031 exchange under sale of business property.  Be certain to check the box 'any additional like kind exchanges" and the program will prompt data entry for the 8824 form.  You will need to manually calculate the basis for the exchange, likely this will include partial year depreciation from manually adjusted Form 4592 Depreciation and Amortization reports, and data entered for the property on schedule E.  There might be a gain or loss from the exchange, depending on the specific details of your exchange.

If you open forms mode, the 8824 form has a link to a specific Schedule E property. I have never figured out what this does, but it does not cause the assets for the property to correctly report partial year depreciation, and link the resulting basis to the 8824.

Multiple calls to support has not resolved this.  I find the interview incomplete and it tried to lead me to significant errors.  The link on the form 8824 appears broken, but again, I've failed to resolve this with Turbo Tax Support.

This is a complex tax issue, Turbo Tax does not handle it automatically and the interview does not warn you properly to calculate and override certain entries, so if you're not comfortable with it I suggest you'll need to find and pay for some expert help beyond Turbo Tax...

Further more, for the property received in exchange, once you have properly completed the 8824 form, you will have the basis for the new property.  This is most likely not the purchase price.   You need to go back to the schedule E and enter this new property, using this basis for future depreciation.

[tagteam]

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@harpermeek692 wrote:

If you open forms mode, the 8824 form has a link to a specific Schedule E property. I have never figured out what this does, but it does not cause the assets for the property to correctly report partial year depreciation, and link the resulting basis to the 8824.

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I have not been able to figure that out, either. I am not sure it actually does much of anything, at least nothing that has much utility. 

Regardless, I concur in your suggestion to seek professional guidance for all but the most simple 1031 exchanges and/or for those who are unfamiliar with the basic concepts.

[tagteam]

If you open forms mode, the 8824 form has a link to a specific Schedule E property. I have never figured out what this does, but it does not cause the assets for the property to correctly report partial year depreciation, and link the resulting basis to the 8824.

[Azphoto]

I have the same issue. I enter the property I sold and then I found the "like kind" link. I don't understand what I need to do to eliminate the huge tax bill it's telling me I owe and get it to recognize the simple exchange of one property for another on the same date at the same buy/sell price. How much simpler can it get than this?

[tagteam]

"Simple" and "exchange" in the context of a Section 1031 exchange is an oxymoron; the words just do not belong together in the same sentence. 

Having said that, you should start by entering the words "like kind" into the search box and then clicking the "Jump to like kind" link. At the very first screen thereafter, be sure to check the box as shown in the screenshot below and then proceed through the entire section carefully reading the information on each screen.

[GTaxMax]

It amazing.  Why are we paying for the upgraded software if it doesn't work?  Should I just hire a CPA?  This was horrible.

Thanks for your help!  This was killing me.

[ianchen23]

I ran into this exact same trap, and had both 8824 and 4797 created, as well as a taxable capital gain.

Tried to delete the 4797 forms but wasn't able to (TT confirmed deletion, but forms were still there).

Finally figured out a way around:

- Go to the relinquished property, choose YES on the "Did You Stop Using This Asset" page

- Fill out the dates for "Date of Sale or Disposition"

- On the "Sales Information" page, leave all 4 boxes blank (Asset/Land Price/Expenses)

Now TT will correctly calculate the depreciation for the relinquished property, and does not generate a 4797.

Of course, you'll still need to go through the other place to create 8824 form, and also add in the replacement property.

Version that I'm using: 2022 online version

[jtrodgers]

This should be the new best answer!!! The current direction is to call Support. That resulted in an hour long phone call (with hold times) only to be directed to a PAID tax advisor. I don't need tax advice - I just need TT to correctly deal with this. Evidently its been a problem for at least two years from looking at the dates on the comments...

[HollyBee]

Thank you Ianchen27! You saved my LIFE. But I have a stupid question - I was able to use your advice and successfully deleted my 4797 that was causing the capital gain to be reported as income this year....and my 8824 looks good. Do I just make sure the 8824 is included with the filed return? It seems weird that I can't properly report this on the sale of rental property form. Is not including the 4797 some kind of problematic omission?

[checkerj]

THIS is the answer I've been looking for. THANK YOU!!!