Where can I report the proceeds from the sale of 1st rental property that was reinvested toward the loan principal of another rental property (2nd rental)?

[violet-green569]

The capital gains should not be taxed because it was reinvested toward an existing rental property?

[DianeW777]

It depends. If you did not have a qualified intermediary, meeting the Section 1031 like kind exchange then you must report the sale of rental number 1.

• Qualified Intermediary: The identification must be in writing, signed by you and delivered to a person involved in the exchange like the seller of the replacement property or the qualified intermediary.  However, notice to your attorney, real estate agent, accountant or similar persons acting as your agent is not sufficient. 
• IRS Fact Sheet for Section 1031 Exchange

If you do not meet the qualifications you can report your sale in each asset for Rental 1 using the steps and example below.

You need to dispose of the property by telling TurboTax how and when it was disposed of.  Follow the instructions below.

1. Click on Search (upper right) > type rentals > Enter > click Jump to .... link (or click the first FAQ and click Go to rentals)
2. Answer the questions and on under Rent and Royalty Summary, click Edit
3. Click Update to the right of Assets/Depreciation.
4. Click Edit to the right of each asset to be disposed of
5. Go through several screens until you get to Tell Us More About This Rental Asset
6. Click on This item was sold…….   And continue to answer the questions

You might also review information here.

Example of arriving at the selling price and sales expenses for each asset in your rental activity.

Example:  Original Cost (of each asset on your depreciation schedule)

$10,000 Land                = 13.33% 

$50,000 House              = 66.67%

$15,000 Improvements  = 20%

$75,000 Total                 = 100%

Multiply each percentage times the sales price/sales expenses to arrive at each individual sales price/sales expense.