how to enter 1031 exchange of one property for two - form 8824

You might want to read through the following thread.

 

https://ttlc.intuit.com/community/taxes/discussion/re-1031-exchange-for-rental-property-end-to-end-question/01/1279716#M462876

 

Note, however, that TurboTax does not support multi-asset exchanges.

Some entries may require the use of Forms mode which is only available in TurboTax CD/Download.  It appears you may be using this version.  

 

An exchange of multiple properties or assets can be a tax-deferred like-kind exchange.  A 1031 exchange of multiple properties or assets occurs if there is one or more relinquished properties being sold and transferred and/or one or more like-kind replacement properties being identified and acquired.

 

Details: To compute excess gain to recognize in this type of 1031 exchange (multiple assets) follow the steps below.

1. The relinquished properties sold and the like-kind replacement properties acquired should be segregated or sorted into exchange groups.  The majority of 1031 exchanges involve only real estate, so only one group of assets would be involved. 
   • (1031 Exchanges of personal property will almost always involve multiple groups.)
2. The liabilities that you assumed as part of your 1031 exchange will be offset by the liabilities you were relieved of as part of the tax-deferred exchange, whether the liabilities are recourse or nonrecourse and whether they're secured by or otherwise related to specific property transferred or received as part of the exchange. 
   • If the amount of liabilities you assume exceeds the amount of liabilities that you were relieved of, the excess amount is allocated among the various exchange groups in proportion to the aggregate fair market value (FMV) of the properties that you received in the exchange groups. The amount allocated to an exchange group can't exceed the aggregate FMV of the properties received in the exchange group.
3. For each tax-deferred exchange group, an exchange group surplus or an exchange group deficiency, if any, must be determined.
4. The 1031 exchange rules and regulations are applied separately and individually to each 1031 exchange group to determine the amount of any excess gain to be recognized, and the basis of the like-kind replacement properties received.
   • § 1.1031 (k)-1(j) 1  This provides examples to determine the basis of each group of assets.

Once you have the fair market value of each property you can divide the value of each property by the total to arrive at the percentage.  Then use that rate against the basis of the property you gave up (on the day you gave it up) and any extra cash you paid for the property or reduced by any cash out to arrive at the depreciable basis for each property. Keep in mind that the depreciable basis does NOT change. It transfers to the property or properties you received and continues on like you always owned the property received.

• Where do I enter a like kind exchange (LKE) Form 8824?  
• When will federal forms be available? (Form 8824 will be ready on 3/31/2022, the IRS recently finalized the form)

I will assume this is for rental properties and provide some instruction for that process.

 

When you are signed into your TurboTax Account you can follow the steps below:

• Under Business Income scroll to 'Less Common Business Situations' > Start Sale of Business Property
• Check the box next to Any additional like-kind exchanges (section 1031) > Continue
• Follow each screen to make your entries > Your Form 8824 will be completed for you based on your entries
• See the images below for assistance

You might consider assistance with walking you through this process.

• What is the TurboTax Phone Number?

Please update here if you need further assistance.

Thank you for the explanation.  I did one of these last year but it was one to one with some excess cash leftover. However, this one is exchanging one property for two so I need a place to enter two descriptions and two set of information for the two new properties I am acquiring. The 8824 instructions says make my own worksheet to show what is done and just enter the values in lines 19 to 25.  How do I make my own worksheet in Turbo tax?

Thanks

Amir

Since you are using Turbo Tax Home and Business, you can go to forms>open form>type in 8824. Within the 8824, there are Smart Worksheet entries that you can make directly on the form. For both properties, you will need two 8824's. Here is a IRS link for the instructions to 8824 in case if you need them.

Thank you. However instructions indicates ”attach your own statement showing how you figured the realized and recognized gain, and enter the correct amount on lines 19 through 25. ”  so how do you attach your own statement in TurboTax desktop?

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@amirb wrote:

.....so how do you attach your own statement in TurboTax desktop?

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You really cannot attach a statement and it is unclear if the IRS even will receive one of the statements included in the program (if properly prepared).

 

As a result, you will most likely have to print and mail your return.

Thank you. I was afraid of that!

I am TurboTax long term customer for years, each year I will use your software for tax return. I have a 1031 exchange one house for two houses in 2021. 

 

I know how to enter form 8244 now, however, after I entered form 8244 for my first like-kind replacement property, how can I continue to enter info for my second replacement property?

Do I need to enter two 8244 forms? here are the questions:

(1) if my relinquished property FMV is $400,000, My 2 like-kind replacement property is $240,000 and $320,000, how can I enter form 8244?

(2) How can I calculate the cost basis for relinquished house and replacement house?

(3) after I entered my first replacement house, should I put extra money value $160,000 ( 400k -240k) in form 8244?

(4) if I need to enter second form 8244, shall I put FMV for relinquished house as $400,000 or $160,000? ( I have used 240,000 to buy the first replacement house, the money left over from exchange is only 160k, so I need to put my own extra money to buy the second house.

Thank you in advance for your time and kindness to help me!!

 

Thank you!!

Derek Shi

1 & 4. No, one form. Here are the instructions for form 8824.  There are two ways to handle a 1031 and TurboTax can only use one method. Click the link for more detailed info on 1031 Exchanges.

 

2 & 3 See my example:

Cost basis of the new property = cost of new property - deferred gain from original property.

 

For example:

• Buy building A, original cost $250,000 ,depreciated $150,000, sold $400,000
• if sold, A would have gain of $300,000 but instead did a 1031 exchange.
• Buy building B for $500,000.
• Cost basis for new property B is $500,000 -  prop A gain $300,000 = $200,000

 

The adjusted basis of building A is the exchange basis.

Excess basis = cost basis for new property  - adjusted basis of building A

 

For example:

• Building A   adjusted basis is $250,000 -dep $150,000 = $100,000 = exchange basis
• Building B $500,000 purchase price
• Excess basis = purchase -exchange
• Excess = $500,000 - $100,000 = $400,000 excess basis

 

The adjusted cost basis is the purchase price minus the deferred gain from the property sold. 

 

From my example above:

Cost basis for new property B is $500,000 -  prop A gain $300,000 = $200,000

 

1031 Exchange - Internal Revenue Service

 

If you have two properties, you will want to allocate the deferred amount based on prices. If building B above plus building C were purchased then:

• Building B purchase price $500,000
• Building C purchase price $300,00
• Then building B is 500/800 =62.5% of replacement to take that portion of the deferred gain.
• Building C is 300/800 = 37.5% of the deferred

 

@Shi1048

 

Hi, 

I have the same questions as you have. Do I need ONE 8824 form, or TWO 8824 forms?

Thank you so much,

Shawn Z

 

You only need one Form 8824 to report a 1031 Exchange (even if one property for two properties).

 

• Part I of Form 8824 is where you provide details about the old property and the new property(ies). 

• Part II of the form comes into play only when a like-kind exchange involves "related parties"—members of a family or entities that you have a controlling interest in.

• Part III is for reporting details about any gains or losses from the transactions that make up the exchange—this is how the IRS keeps track of your taxable gain or tax-deductible loss

 

Click this link for more detail on Form 8824, Like Kind Exchanges.

 

 

@XiangZh

I have almost the same quitions  Sold two rentals in exchange for on bigger rental higher price, but I own 50% of all relinquished and replacements, do I fill the form for the total amount or divide everything in Half to enter on 8824.   

You will enter your half of all income and expenses. You should only report what belongs to you.

1. Enter the like-kind exchange information first to determine your cost basis for the new property.  This is under Sale of Business Property (not Sch E).
2. Enter the new property information for the property you bought in the exchange. (Sch E)  Use the calculated cost basis from Step 1 and the date the property was put into service.
3. Enter the old property information.  Technically, the property was not sold, but exchanged.  Do not report it as being sold, but report the dates it was taken out of service.

Related:  Like-Kind Exchanges - Real Estate Tax Tips | Internal Revenue Service.

@Samzaza

Hello,

 

My two rental properties were bought on different dates. If use one 8824, how to enter the new property information (e.g. dates, prices, and expenses) for two properties in one 8824 in TurtoTax?

 

Many Thanks,

 

The IRS instructions suggest using one 8824 form with "Summary" as the description of the property and attach the worksheets explaining how one property was exchanged with two properties. The TurboTax people are not updating the worksheets or the form to support this option. Even the existing worksheet for a scenario of one-to-one exchange  is horrible. Why not give us a blank worksheet option to deal with the 8824 form? 

 

I am forced to print and submit the tax forms and I hate it.

This is a follow-up to @dnaren's comment.  I had a 1031 exchange with one relinquished property and two received properties and, per the IRS instructions for Form 8824, "[i]f you transferred and received (a) more than
one group of like-kind properties [...] don't complete lines 12 through 18 of Form 8824. Instead, attach your own statement showing how you figured the realized and recognized gain, and enter the correct amount on lines19 through 25" and then write 'See Attached Statement' on Form 8824.  Which I did.

 

And of course one needs to actually print out the return and mail it in with the accompanying statement. 

 

The problem is that within TurboTax, Form 8824 won't print--or be calculated into the return--unless you also fill out lines 16 through 18.   What I did was just fill the whole form out making sure that line 19 through 25 reflect the correct amounts, printed the Return, and then force printed a separate copy of Form 8824 with data in lines 16 through 18 removed and substituted that copy into my mailed return.  

Sorry but all of the DIY programs are written for use by the majority of the users however not all of the user needs can be covered correctly.  Some situations ( like complicated 1031 exchanges ) are better handled  by tax professionals and not by the taxpayer using a DIY program.    Professional tax preparer  can handle these more complicated situations  and can populate and attach the appropriate forms/schedules/worksheets as needed.  

 

If you want to tackle this yourself then  you will need to use the downloaded program using the FORMS mode and making up your own worksheets if needed and mail in the return if those attachments are needed.  

@Critter-3, thank you for the reply.  My apologies, I did not mean my comment to read as a criticism of the product.   Rather, reading through the thread I got the impression that some people were having difficulty navigating a multi-property 1031 exchange using TurboTax, and I just wanted to share my success.  

 

Yes, I used Form 8824 in 'forms' mode, with attached supplemental worksheets, and I just wanted to mention the steps I had to take to get the form to print/include in my return.  

 

And yes, my tax preparer would have been more than happy to take this return off my hands (seeing as he does the other 8 K-1s and 1041s that I am responsible for).   That wasn't the point.

Do I need to upgrade to business turbo tax to finish this task?  my current version is premier.

It allows me to do 8824 1:1 exchange 

You need ANY of the DOWNLOADED/CD versions since you must make direct form entries in the FORMS mode which is only available in the downloaded programs.   If you are currently using the online version you can stop and switch without losing your current work ...

 

https://ttlc.intuit.com/community/choosing-a-product/help/how-do-i-switch-from-turbotax-online-to-th...

 

 

And if you are not comfortable then you could upgrade the online program to the LIVE CPA option where the tax pro will do it on their professional system for you.   OR  you can go to a local tax pro near you. 

@Critter-3 is absolutely correct; either use any desktop (installed on a computer) version of TurboTax or use an online version with either LIVE or Full Service support.