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.
