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Returning Member

1031 reversal

My 2019 taxes included a 1031 exchange.  In retrospect I wish I had not bothered (my income was $17,000 in 2019 and the capital gain on sold property was $22,000).  Can I amend my 2019 to remove/reverse the 1031 exchange?  I would just pay the applicable taxes and depreciation recapture for 2019 for the property sold.  And set the new property without the 1031 exchange carry over.  

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Level 15

1031 reversal


@motokerry wrote:

Can I amend my 2019 to remove/reverse the 1031 exchange? 


Not really since the nonrecognition provision of Section 1031 is mandatory if the transaction qualifies.

 

Section 1031(a)(1) states:

 

No gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment if such real property is exchanged solely for real property of like kind which is to be held either for productive use in a trade or business or for investment.

 

Further, one U.S. appellate court held, "§1031 and its predecessor are mandatory, not optional; a taxpayer cannot elect not to use them".

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3 Replies
Highlighted
Level 15

1031 reversal


@motokerry wrote:

Can I amend my 2019 to remove/reverse the 1031 exchange? 


Not really since the nonrecognition provision of Section 1031 is mandatory if the transaction qualifies.

 

Section 1031(a)(1) states:

 

No gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment if such real property is exchanged solely for real property of like kind which is to be held either for productive use in a trade or business or for investment.

 

Further, one U.S. appellate court held, "§1031 and its predecessor are mandatory, not optional; a taxpayer cannot elect not to use them".

View solution in original post

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Returning Member

1031 reversal

Thank you for the prompt reply.

 

I wish to pay the taxes on the sale of the property rather than process an exchange.  So I am not sure if your answer applies.  I do wish the recognize the capital gain and taxes of the property sale; hence the amended tax return.

Highlighted
Level 15

1031 reversal


@motokerry wrote:

So I am not sure if your answer applies.  I do wish the recognize the capital gain and taxes of the property sale; hence the amended tax return.


I apologize if the answer was not clear, but based upon the language of Section 1031 and the court cases, Section 1031 is mandatory (i.e., you cannot elect out of it) assuming the transaction otherwise qualifies.

 

In short, you cannot simply choose to recognize gain if the transaction falls within Section 1031.