topic 1031 Exchange expenses in Get your taxes done using TurboTax

1031 Exchange expenses

kashblack1953 — Tue, 27 Dec 2022 02:54:10 GMT

In stepping through a like kind exchange I come to a screen where TurboTax is asking for any sales expenses, which includes:

Sales expenses include the following:
- Sales commissions
- Advertising expenses
- Legal fees
- Loan charges paid by the seller, such as loan placement fees or points
- Broker fees
- Transfer taxes
- Option premiums

This in turn populates line K (Exchange expenses total) of the smart worksheet for line 15 of Form 8824. Unfortunately what is requested are only the expenses associated with the relinquished property, not the qualified intermediary fee and costs associated with the purchase of the replacement properties. Where are these costs entered?

Re: 1031 Exchange expenses

Anonymous_ — Tue, 27 Dec 2022 14:47:13 GMT

See https://www.irs.gov/instructions/i8824#en_US_2022_publink12597kd0e518

Line 15 and Line 18

Re: 1031 Exchange expenses

kashblack1953 — Tue, 27 Dec 2022 16:49:36 GMT

Thanks! I have read the IRS instructions. My question is where in TurboTax are these expenses entered?

Re: 1031 Exchange expenses

Anonymous_ — Tue, 27 Dec 2022 17:03:47 GMT

In the interview for "Exchange expenses".

Any other expenses will have to be entered in Forms Mode on Form 8824 (which may require an override voiding the accuracy guarantee and most likely preventing the return from being e-filed).

Re: 1031 Exchange expenses

kashblack1953 — Tue, 27 Dec 2022 20:58:15 GMT

The exchange expense input is for the property being disposed (sold), not for expenses associated with the exchange or replacement properties, such as qualified intermediary fees and closing costs. I tried entering these costs with the property disposal costs, however this reduces the deferred capital gains, which isn't correct. I tried manually editing form 8824, however I don't know how to handle the AMT entries. This seems to be an omission, how is this brought to TurboTax's attention?

Re: 1031 Exchange expenses

Anonymous_ — Tue, 27 Dec 2022 21:35:26 GMT

@kashblack1953 wrote:

.............how is this brought to TurboTax's attention?

It already has been brought to their attention and is, quite frankly, low priority.

Re: 1031 Exchange expenses

kashblack1953 — Thu, 29 Dec 2022 21:44:34 GMT

Sad - because it's a pretty straight forward fix. All that's needed is to add a screen to enter expenses associated with the replacement property acquisition and move the logical test for if the replacement costs is less than the net of the property that is disposed until after the disposal and acquisition costs have been entered. As it is the like kind exchange feature should be disabled since it won't allow a user to properly account for this type of a transaction. Support at TurboTax told me I that I should purchase professional tax software if I wanted it done correctly. How does TurboTax's guarantee and audit defense work in this situation?

Re: 1031 Exchange expenses

Anonymous_ — Thu, 29 Dec 2022 21:54:30 GMT

@kashblack1953 wrote:

How does TurboTax's guarantee and audit defense work in this situation?

Good question, but the answer is that they do not work due to the fact that multi-asset exchanges are not supported.

Re: 1031 Exchange expenses

kashblack1953 — Fri, 30 Dec 2022 00:00:09 GMT

Good try, but the issue is the same with a single asset being exchanged. Program isn't doing the accounting properly

Re: 1031 Exchange expenses

leannepaul — Mon, 20 Jan 2025 22:48:53 GMT

Hi - does anyone know whether this issue has been fixed since 2022? We did a 1031 this year and are debating whether to use TurboTax or go back to an accountant.

Re: 1031 Exchange expenses

kashblack1953 — Mon, 20 Jan 2025 23:26:57 GMT

Sorry, Turbo Tax generally doesn't fix problems. I did find a work around that gave the right answers but that was two years ago. Just finished another so get to figure it out again when I do 2025

Re: 1031 Exchange expenses

leannepaul — Mon, 20 Jan 2025 23:29:00 GMT

Hmm, we'll probably try it and if we get totally frustrated just file an extension and then find an accountant!

Thanks for the quick reply!

Re: 1031 Exchange expenses

curtjenny — Sun, 09 Feb 2025 01:39:26 GMT

We did a 1031 in 2004 and then exhanged that property in 2008. We just sold that property in an installment sale yesterday. Unfortunately, I cannot locate the actual Turbo Tax files from those years (or can locate them but not be able to figure out how to open them after so long), and I cannot recall what Turbo Tax did with the exchange expenses. I do have .pdfs of both exchange year's taxes. The supporting details of form 8824 in 2008 enumerate expenses (commission, exchange fees, recording and escrow fees etc.) of $51,000 related to the transaction. Will those have been added in by Turbo Tax to the basis of the property received in 2008 so that the cost basis shown on Form 8824, Part III, Line 25 (Basis of Like-Kind Property Received) INCLUDES those amounts and is what I should use for the 2025 sale? Or have those been included in Line 18, the basis of the property given up? On the 2004 return, the basis of the property we gave up and the property we received were both listed as 268,335, and on the 2008 return each property's basis is listed as 291,351, a difference of $23, 016. We had several capital improvements on the property that we gave up in 2008, so it is plausible that this $23,016 is just those. So does the new basis of the property acquired in 2008 not yet include the $51,000 in expenses that we can now add to the basis in calculating the taxable gain on our 2025 sale?

Re: 1031 Exchange expenses

AmyC — Tue, 11 Feb 2025 01:14:18 GMT

1. I can't find tax law for 2008 for the 1031. Common sense leads me to think the expenses related to selling the property were added to the basis of the property sold while purchasing expenses were added to the basis of the new property. The fees to the exchange agent should go into the basis of the new property. You alone have the paperwork from the purchases and exchange.

2. No, you would not add it now. It has to have been used in the past. You do not carry over expenses like that. If the new property had a basis in 2004 of $268,935 and was depreciated and then had a higher value 4 years later - this requires improvements to have been made to offset the depreciation and still have an increase in basis. You clearly spent additional funds between 2004 and 2008.

Re: 1031 Exchange expenses

gr3849 — Thu, 27 Feb 2025 06:11:44 GMT

Hi, I have the same issue and was wondering what was your work around solution?

Thanks

Jerry

Re: 1031 Exchange expenses

MarilynG1 — Thu, 27 Feb 2025 17:03:12 GMT

It would seem logical to add Sales Expenses for the new property to the Cost Basis of the new property, as mentioned by @AmyC above.

Here's more info on 1031 Exchanges.

@gr3849

Re: 1031 Exchange expenses

kashblack1953 — Thu, 27 Feb 2025 17:41:32 GMT

I believe that you are correct, all expenses related to the sale (commissions, escrow etc) plus the qualified intermediary fees should be added to the the basis and depreciated over time.

Re: 1031 Exchange expenses

oawong — Fri, 07 Mar 2025 19:50:33 GMT

What was the work around that gave you the correct answers two years ago? Can you just increase the FMV of the replacement property to include the associated exchange costs? Or do you have to manually edit line 18 of form 8824 to include the costs?

Re: 1031 Exchange expenses

Mike9241 — Fri, 07 Mar 2025 20:38:54 GMT

go to business items sale of business property when you go through the 8824 (for 1031 exchange) it should ask you about exchange expenses.

as I went through finally there was a page that said "Exchnge expenses" and asked for an amount

Re: 1031 Exchange expenses

oawong — Fri, 07 Mar 2025 21:12:50 GMT

I believe the exchange expenses in turbotax refer to the property disposed of (sold) and not the replacement property.