How do I have TT calculate the tax due on my Depreciation Recapture for a failed 1031 exchange that straddled two tax years - 2021 and 2022.

[turbojaxson]

I sold a rental house in September of 2021 and anticipated a like-kind exchange by March of 2022.  However, the like-kind exchange failed.  I believe I need to report the sale on my 2021 tax return, say there was a like kind exchange and use the installment method. I also believe that I can defer the capital gain until 2022 tax year, but need to pay the Depreciation Recapture Tax in  2021 tax year.

 This leads me to two questions:
1 - How do I have TT determine the tax due on the Depreciation Recapture, even though there was no official "gain" during 2021. It is currently not calculating any tax due for depreciation recapture.

2 - For the like-kind exchange, TT is asking for details about the different property received: Fair Market Value of property received, promissory note received or cash received.  Because the exchange failed, I received none of these.  TT won't let me continue with any like-kind data entry as its says my values must add up to my gain from sold property, etc . How do I "continue?"

[Anonymous_]

Was this the fault of the qualified intermediary (because there is Revenue Procedure No. 2010-14)?

I believe you might need to eliminate (delete or otherwise) the exchange date (8824) and report the transaction strictly as an installment sale in order to get the correct result in TurboTax.

[turbojaxson]

No, its is not the fault of the QI.  The seller backed out of the sale and the breach of contract is now in litigation.  

I did as you suggested,  tagteam, and removed the Like-Kind exchange and only kept the installment sale.  However, TT is not calculating a tax to be paid for the Depreciation Recapture.  We have owned this rental property for several years and have 77,000 of accumulated depreciation.

 I believe that I have to pay the full amount of recapture tax in the year the property is sold (2021) even though we received no funds at the time of closing.  Funds were received in March 2022 for the failed like-kind exchange.

It's the calculation of recapture tax that I don't think TT is calculating for me.  Any suggestions?

[Anonymous_]

Are you entering the sale in the Rental Properties section or the Sale of Business Property section?

[turbojaxson]

I am entering it in the Rental Properties section.  

[Anonymous_]

I suppose you are not using a desktop version of TurboTax, correct? If you are, then you can explore this in Forms Mode which should make a world of difference in terms of troubleshooting.

If you are using an online version, I can only suggest that you contact Support via the link below.

What is the TurboTax phone number? (intuit.com)

[turbojaxson]

Thanks, tagteam.  No, I am not using the desktop version.  I will reach out to Support as you suggested.  Thanks for taking the time to help me!

[turbojaxson]

Hi, tagteam - 

I went ahead and downloaded the Desktop version of Turbo Tax so that I can try to do my Like-Kind exchange and calculate the depreciation recapture.  I should not have a gain for 2021 because the exchange failed.  Any suggestions on how I can make this happen in the forms version?

[RobertB4444]

You'll need to enter the depreciation recapture separately in TurboTax and following these steps.  

Depreciation recapture is a tricky business.  Please pay careful attention to the questions being asked and double check if you are unsure before answering them.