Sold rental bought with 1031 exchange then used 1031 to buy another rental

[MrVette]

Looks like TT wants me to pay tax on profit from the sale but I used all the money plus a few hundred of mine to buy another using 1031. Not sure TT is set up to deal with a continued 1031 chain. Any advice on how to deal with this?

[M-MTax]

You'll probably have to do another 8824 in Forms Mode with a 1031 "ladder". 

Even a lot of 1031s are not exactly simple to enter in TurboTax using quick entry.

[Mike9241]

Were the funds from the sale held by a qualified intermediary? This is unclear from your post. If so, fine, but if you got control of them, then you can't do a 1031.

[MrVette]

Yes, followed all the rules. This is my 3rd 1031.

Bought 2 properties with the proceeds of the first sale in 2017. Now sold one of them in 2025 and reinvested those proceeds in another rental. Problem is how to deal with the 2025 sale and purchase for tax purposes. So far TT wants me to pay tax on the apparent profit. 

[MrVette]

Taking your advice and doing a 8824. The property sold was FMV somewhat over the FMV of the replacement property. But with closing and 1031 exchange company expenses I actually had to pay a few hundred $ out of pocket to buy the second rental. So on that basis it appears the sale and purchase was essentially a wash.  But do I have to pay tax on the difference in FMV? It appears the 8824 worksheet thinks I should.

[MrVette]

There is a box on the worksheet says "cash received". That's the difference in FMV. But I didn't get any cash. I actually paid a few hundred to complete the new purchase.

[M-MTax]

Selling expenses would serve to reduce the amount of cash boot received.

[MrVette]

In my case there was negative boot, so to speak.

[MrVette]

The worksheet shows the difference between FMV of property sold minus the lower FMV of property bought as "cash received". But with closing costs there was no "cash received". Just cash out of my pocket paid. So I thought the transaction was almost a total wash. But maybe not for tax purposes?

[M-MTax]

Look at Line 15 on your 8824:

Cash received, FMV of other property received, plus net liabilities assumed by other party, reduced (but not below zero) by any exchange expenses you incurred. See instructions

https://www.irs.gov/instructions/i8824#en_US_2025_publink12597kd0e518

[CatinaT1]

Because the Fair Market Value (FMV) of your new property is lower than the property you sold, the IRS considers that difference to be "Boot" (taxable value received), even if that "value" was immediately eaten up by closing costs.

When the FMV of your new property is lower than the old one, Form 8824 treats the difference as if you were handed that cash and you chose not to buy enough "house" with it.

However, you can offset this "Cash Received" by properly accounting for Exchange Expenses and the Cash Paid out of your own pocket.

To make this a wash, your Form 8824, Line 15 (Net cash received) needs to result in $0. The Exchange Expenses includes your 1031 intermediary fees, broker commissions, and legal fees. If these aren't entered, that FMV gap stays taxable.

In the 1031 interview (or on the 8824 worksheet in Forms Mode), look for the field Cash paid to other party. This directly subtracts from the Cash Received figure.