DST questions, property in Alabama

[cuadradog]

Hi all

2020 was the first time I did a DST/1031 exchange.  I got my DTS papers from the qualified intermediary and a 2020 Year-end Tax Information from the DTS. 

I have a few questions about what to do now and the steps I took; I would appreciate any feedback if what I am doing is correct:

1.  I added  the DST property in the  "Rental Properties and Royalties" of Turbo Tax , used the information from the DST 2020 "Profit and Loss" report part given to me  (BTW, there was no reported depreciation in the report, not sure if this is typical?) 

2. I reported the exchange on "Sales of business property" section in Turbo Tax 

3. Do I have to file a tax return in Alabama. where the actual property is located? ( I am a resident of Indiana)

Per Turbo Tax, with the information I placed, it calculates that I have a Net Income of $4 ( four dollars)

Thanks for any help

[DianeW777 · Accepted solution]

The answers are provided below in the order of your questions.

1. Depreciation Rules: 

   You continue the depreciation as though there was no trade. Then with any extra cash that was paid for the replacement property (the property received in the exchange) you set up a new asset and begin depreciation in 2020 as residential rental property using 27.5 year recovery period (depreciation method).

   If you buy up in your exchange (your New Property cost more than you sold your Old for), the answer is easy – you treat the additional cash 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 a capital improvement.

2. The like-kind Section 1031 entry should be completed as follows:

   1. With your return open in TurboTax, search for like kind (2 words, no dash)  > Press Enter > click the "Jump to" link at the top of your search results.

   2. This will take you to Any Other Property Sales? Check the second-to-last box from the bottom for like-kind and section 1031 exchanges and click Continue.
   3. On the next screen, answer Yes and proceed through the interview questions. We'll fill out Form 8824 for you.

   • Note: If you accidentally generated a Form 8824 that you don't need, you can delete it by repeating steps 1 and 2 above. This takes you to the Like-Kind Exchanges summary screen where you can then delete the unwanted form. 

     • What is a like-kind (Section 1031) exchange?
3. You are required to file an Alabama (AL) return if as a nonresident your income is over the allowable prorated exemption (full year resident amounts are $3,000 for married filing jointly and $1,500 for single).  AL Instructions
   • Prorated generally means the AL income divided by the total income (or taxable income).

[cuadradog]

Thank you for your reply, it implemented it in TT

I am still confused about the AL reporting requirements: 

You are required to file an Alabama (AL) return if as a nonresident your income is over the allowable prorated exemption (full year resident amounts are $3,000 for married filing jointly and $1,500 for single).  AL Instructions

• Prorated generally means the AL income divided by the total income (or taxable income)

1.  Let's say the total income is  $100,000  and the Alabama income is  $10

Would my prorated calculation be  100,000 /10 = 10,000    or  10/100 K= 0.0001 ?

If I understood your comment well, I should be dividing AL income ($10) by the total income ( S100 K) giving an amount lower than the 3,000/1.500 exception, therefore, no need to file a return? If it's done the other way, there would be a need to file a return.

2. What number I need to use? Is it the total income or the taxable income?  In my return, those are 2 different numbers: the taxable income is the total income minus deductions.

[AmyC]

AL does not begin with federal AGI like many states. Your best option would be to use AL /fed AGI.

Ex 10/100,000 = .0001 x 3000 = $0.30 or more income would need to file if MFJ. This would mean you need to file since $10 is greater than 30 cents.