I used a qualified intermediary and identified and bought the new property in the allotted time frame. In TT, I went to business income, sale of business property, and checked the box for a like-kind exchange. In schedule E, for my rental properties, at first I indicated that the exchange property had been sold, but after reading the fine print, which says not to check that box if it's a like-kind exchange, I unchecked it. It didn't change the outcome, however, and both ways I'm being charged for capital gains on something that should be deferred.
The like-kind exchange may have been entered correctly, but the sale may also have been entered which would result in a taxable gain showing on Schedule D.
Check your input under the section Business Income, Less Common Business Situations, Sale of Business Property. The box on the bottom for additional like-kind exchanges should be checked. If the box on top, sales of business property is checked, you may also have entered it as a sale. If you continue further, it should take you to a screen that shows Sale of Business Property (Copy 1). If information was entered there, you probably have to delete it (Copy 1) because that's producing Form 4797 and Schedule D. As you continue further in this section, you should see the like-kind gain previously entered, which should be the only input in this section.
It's hard to say without seeing numbers. Were all the proceeds from sale used to acquire the new property?
Yes, all the proceeds from the sale were used in the exchange. On form 8824 line 23, my recognized gain is zero. Line 24 shows my deferred gain as $53,000. However, for some reason, TT has filled out form 4797 for this same property, showing a capital gain of $63,000. Is it correct that form 4797 should not have been filled out for this property, since it had already been reported as a deferred gain on 8824?
See answer. I tried entering a deferred gain and encountered the same issue because I was entering it as a sale in addition to a like-kind exchange. You are correct in that it should show up only as a deferred gain and not as a taxable gain. Let me know how it works out.
How did it work out because I have just had the same issue come up on my tax return and can't seem to fix.
See the additional answer section below, I think it now addresses both TT: Home and Business and TT:Business, short answer is you mostly have to backout the transaction and likely delete forms and make sure the 4797 is not in the form list, then start over using the tips and tricks in the answers below
The like-kind exchange may have been entered correctly, but the sale may also have been entered which would result in a taxable gain showing on Schedule D.
Check your input under the section Business Income, Less Common Business Situations, Sale of Business Property. The box on the bottom for additional like-kind exchanges should be checked. If the box on top, sales of business property is checked, you may also have entered it as a sale. If you continue further, it should take you to a screen that shows Sale of Business Property (Copy 1). If information was entered there, you probably have to delete it (Copy 1) because that's producing Form 4797 and Schedule D. As you continue further in this section, you should see the like-kind gain previously entered, which should be the only input in this section.
Thank you - this was the issue. This appears to be a glitch in TT, because I tried unchecking the upper box, yet it kept those forms filled out - I had to keep the box checked, then go in and delete that property before it removed form 4797 and the input on Sch D. Also, TT should explicitly say not to check the upper box if one is entering that property as a like-kind exchange.
Has the glitch been addressed? I am getting a capital gain figure on my 1031 exchange and the numbers are unreal.
I thought you resolved the problem; wasn't Form 4797 removed? There may be a glitch, but if you go back in and delete the property the way you described above, it should remove Form 4797.
Yes, jmisiag, just go in and delete the property if you checked the sale of business property box. The glitch remains, but you can work around it by doing that, as hbbcpa suggested.
I seem to be having a similar problem with TT BUsiness 2016, I did a 1031 exchange 12/16 -> 1/17, but when I enter it in the "Rental Real Estate Income and Expense" step-by-step page, I am still getting a K-1 line 10 gain and a Form 4797 is getting generated and I can't seem to delete it. I tried going through with the "About your business" / Rental real estate property summary / Confirm property information page with rental property sold or otherwise disposed checked and un-checked, it did not matter.
Hope someone can see this and help out.
Make sure you read the additional answer below from @stuart.bunstock - after following it my Schedule D and Form 4797 were gone, as desired.
I struggled with this for hours; and the solution was just to delete all info in the SALES INFO boxes! For your exchange property, under Business Income Expenses, choose "update" on the "Assets/depreciations"; ."yes, go to my asset summary"; continue thru the screens to get to "..any items not covered.."; choose, yes, then the property, "edit"; continue thru ; choose "no" .. I did NOT stop using item for business purposes; continue thru to "Sales Information" and make sure all the four boxes are empty. (The fact that you do not check you sold it is NOT enough; these boxes have to be empty).
Thank you very much for this additional information, but I am having trouble understanding your steps. I can't seem to get to a screen that has "any items not covered". Under the Federal Taxes tab, there is Rental Real Estate button and an Income button, if I choose the Income button, there is a Asset Disposal, but I was not able to find an Assets/depreciations. This is TT:Business (not premiere or other)
I do appreciate the suggestions
If I understand correctly you're doing a 1065 for a real estate partnership that sold its property Dec '16 and reinvested the proceeds in new property in Jan '17. If so, the relevant input would be under Rental Real Estate not in About your Business. Please respond for further details.
Correct, that is where I am doing it (under Rental Real Estate), I was trying to understand what Stuart.bunstock suggested and was getting lost. The issues is I can see the form 8824 has the Deferred Gain on line 24 (which is correct), but on the K-1 I am getting a gain from Form 4794 (sale or exchange of Property) Line 7 that is getting transferred to the Form 1065 Lines 9c and 10
So my suggestion regards a 1030 exchange of Rental Property. The TT instructions are not very clear, so it is easy (and wrong) to check the box indicating you disposed of the property to be sold as part of the exchange. It is important to remember that for Tax Purposes… you are NOT selling the property, you are exchanging it. That said, if you do check that box, I believe TT will auto fill some areas that need to be blank. To clear those areas (the boxes in “Sales Information”.
So to check that the SALES INFORMATION boxes are blank:
Click on the main BUSINESS tab, (to the right of personal info), CONTINUE, then select I’LL CHOOSE WHAT I WORK ON. That leads you to a page called LET’S GATHER YOUR BUSINESS INFO. Scroll down to RENTAL PROERTIES AND ROYALITES. Choose UPDATE; YES at INCOME FROM RENTALS… ; answer questions; then at RENTAL AND ROYALTY SUMMARY choose the property I the 1031-exchange that you are “giving up”, Choose EDIT; choose UPDATE for ASSETS/DEPRECIATION; choose YES I WANT TO GO TO MY ASSET SUMMARY; CONTINUE; @ YOUR PROPERTY ASSETS choose EDIT for the property you are “giving up”.
Make sure the cost is the original “Unadjusted” cost (the purchase amount (this includes value of land) plus costs to purchase. Note: last year’s Schedule E worksheet for the property shows this COST (NET OF LAND), and previous years’ depreciations, and that years depreciation. The COST field value here is the original cost of land plus the COST (NET OF LAND). To get the Prior depreciation, you add the previous years’ depreciation, that year’s depreciation, and the depreciation for this tax year.
The choose CONTINUE. At DID YOU STOP USING THIS ASSETT IN2016 and NO (not real intuitive; but remember you are not “selling”, you are “exchanging”). Answer questions, then navigate to HOME SALE and choose NO;
Here are the infamous blocks that need to be blank. They are found here, at SALES INFORMATION. Make sure these are blank, and all is well. (Your see your taxes owed change to a big credit).
Then it just details: Make sure the other info is right; Click on the main BUSINESS tab, (to the right of personal info), CONTINUE, then select I’LL CHOOSE WHAT I WORK ON. That leads you to a page called LET’S GATHER YOUR BUSINESS INFO. Scroll down to LESS COMMON BUSINESS SITUATIONS and select UPDATE for SALES OF BUSINESS PROPERTY. On page ANY OTHER PROPERTY SALES? Check ANY ADDITIONAL LIKE-KIND EXCHANGES (SECTON 1031), then CONTINUE. That takes you to page LIKE-KIND EXCHANGES; make sure to CHECK the THE LIKE-KIND PROPERTY I EXCHANGED WAS USED IN. Here you input the adjusted basis for the property for are “giving up”; (note: the values are pro-rated proportionally if more than one “replacement” property is involved. In my case I bout to identical duplexes, with exact same costs and purchase amounts, so it was easy; I just input half the total amounts in these boxes.).
Then select CONTINUE to navigate to LIKE-KIND PROPERTY RECEIVED and put in the full amount of the purchase price. CONTINUE. Answer next few questions, and put in the “proportionate amount of expenses” for this purchase (the proportionate costs to sell, plus the costs to buy the new property). Answer the next few questions. In a few screens – at YOUR LIKE-KIND EXCHANGE RESULTS: DEFFERED GAINS” TT will show your deferred gains, and then CONTINUE ... @ NEW PROPERTY BASIS … TT shows the new property Tax Basis; (note this amount includes the land value, so you will have to break that out later when you return to that property detail area --back at the LET’S GATHER BUSINESS INFO, then RENTAL PROPERTIES AND ROYALTIES” area) to input the land value and new “Unadjusted Tax Basis for the Improvements”.
To do that navigate by choosing: UPDATE, answer YES to review your rental and royalty info, answer questions, then at RENTAL AND ROYALTY SUMMARY select the subject property to EDIT, then select ASSETS/DEPRECIATION;… UPDATE; select “Yes, I want to go to my asset summary”, CONTINUE; select EDIT at the property; choose type (RENTAL RE PROPERTY), CONTINUE; choose RESIDENTIL RENTAL RE, CONTINUE. Here is where you put in the new property Tax Basis (at COST), and breakout the land portion just below. Answer questions. If multiple properties, then repeat for each.
Please confirm which version of TT you are using, I think you have TT: Home and Business (Sole Proprieter LLC)? I am using TT: Business, thanks for being so specific with the directions, because it allowed me to I think identify that we have different products!
yes, I am using TT: Home and Business. I would thin that the concepts are the same though --- if not the navigation.
This is a tough one 4saul. I had the same problem you had and could not figure why. What I did was delete all of the related forms and reenter the info and that fixed the problem. It seems like a glitch and you may have to reenter the info.
I believe that once you accidently select the Sale of the property TT auto fills in those 4 boxes. When yo uncheck the Sale of the property those four boxes remained filled in, so you have to manually delete them. Or you could start over and be very careful not to select the sale of property box. Definitely a glitch!
Yes, a glitch, this is ultimately what I ended up doing, completely backing out the exchange, that seems to remove the all the forms, restarted the exchange and each step checked that the 4794 did not show up again, and then when I completed it, there was no cap gains on the K-1. Thanks to all, I probably would have gotten there eventually! I will try to close this out directly with TurboTax Support since I have a call in with them also.
Now I just need to understand FMV determination better to provide the best "defensible" numbers for the relinquished and received properties. If anyone has good suggestions for that, I would be grateful for the information.