Recording a Two for One Like Kind exchange info.

[SHELBYCSX253]

Hello,  I would greatly appreciate some guidance with recording my information for taxes.  In 2024 I relinquished two residential rental properties and acquired one through a 1031 Like-Kind Exchange.  Opinions vary widely on how this should be recorded. I'm using TT Desktop.  I had NO mortgage on relinquished properties, but took  out mortgage on acquired property.  Currently Fm 8824 records are:

Section I.

Line 1. Both relinquished asset addresses. 

Line 2. Acquired asset.

Line 3. 09/01/08  ( Earliest acquired date of the two relinquished assets)

Line 4.  5/15/24    (Date first asset was relinquished)

Line 5.  6/6/24   (Identified asset to acquire {this is also the date second asset was given over})

Line 6.   6/21/24 (New asset acquired )

In section III.

A, C, and F, $650,000 The FMV of acquired asset.

G  $455,000 the combined amounts from relinquished assets

     Along with a summary noting the sale prices $255,000 and $200,000  and description of the relinquished         assets.  

If that is correct, I now have the closing costs to account for.  

I have:

Agent commissions

Title search

Title Ins.

I gave a credit to my buyer

points and origination fees on my mortgage

Taxes,

incidental fees from closing agents

Surveys

etc.  

What do I do with all that?  Do I take all these costs and put them in the depreciation schedule?  Do I lower the sales price of relinquished assets to account for these costs.   

Thank  you for your help.

Respectfully!

[DianeW777]

Yes that appears to be correctly entered. Keep all of the documents used in the exchange as they will be considered current until the final property is sold. See the 'Buy-up' for the closing costs and adding it as an asset.

Depreciation Rules:

The basic concept of a 1031 exchange is that the basis of your Old Property rolls over to your New Property. In other words, if you sold your Old Property for $100,000, and bought your New Property for the same, your basis on the New Property would be the same. It makes sense then that your depreciation schedule would be exactly the same, and does not change! In other words, you continue your depreciation calculations as if you still own the Old Property (your acquisition date, cost, previous depreciation taken, and remaining un-depreciated basis remain the same).

• You should add the property received in the exchange as an asset with the original date placed in service and the original cost for both building and land.

Buy-up in the Exchange: (closing costs in your exchange)

If you "bought-up" in your exchange (your New Property cost more than you sold your Old Property), the answer is easy – you treat the buy up 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 construction, for example, of a garage added to an existing house – the cost is the amount of the buy-up; the date you start depreciating it is the date you purchased the new property; and the depreciation method you use is the method most appropriate for that type of property in the year you bought the New Property (regardless of the method you used for the original house). If you think of it this way, then it's easy, even if your property is a large office building or a more complex purchase.

If you receive cash, relief from debt, or property that is not like-kind, you may trigger some taxable gain in the year of the exchange. There can be both deferred and recognized gain in the same transaction when a taxpayer exchanges for like-kind property of lesser value without paying additional funds for the property received.

• Where do you enter a like-kind  or Section 1031 exchange?
• IRS Fact Sheet for Section 1031 Exchange
• IRS Instructions for Form 8824

The steps for each asset and necessary entries for a clean exchange will assist.

When you have your TurboTax return open you can use the following steps to update the original assets in the exchange.

1. First use the Search (upper right) > Type rentals > Press enter > Click on the Jump to... link
2. Or Income & Expenses > Rental Properties and Royalties > Update > Continue to Rental and Royalty Summary > Edit the property
3. Scroll to Assets/Depreciation  > Click Update > Select 'Edit' next to each asset
4. Edit beside each asset > Continue to the Tell Us About This Rental Asset
5. Select the checkbox beside 'This item was sold, retired, .... traded in ....etc. > enter the date it was traded (sold/retired)
6. Answer the question about whether it was 100% business > Leave the original date it was placed in service (may be purchase date or later depending on your circumstances)
7. Continue to the screen 'Confirm Your Prior Depreciation'  
   • The amount displayed is only for prior years and does not include the current year. 
   • Continue until you see the current year amount displayed and make a note to add the two amounts together for the Section 1031 like kind exchange.
   • This completes the asset portion of the trade.
8. Answer 'Yes' to Special Handling ONLY for the assets given up.
9. Enter the property received in the exchange with details noted above under Depreciation.

@SHELBYCSX253

[Edited: 03/15/2025 | 1:34 PM PST]