like kind exchange

[Jaegerml]

In the rent and royalty section - when the sale of property is entered (sale price $2,000,000 less adjusted basis of $475,000) there is a capital gain of $1,525,000 and tax of $335,000. In the sale of the business property section - the like kind exchange information is recorded (the 4 properties purchased total $2,100,000) for a deferred gain of approx $1,528,000. If the sale isn't recorded in the rent and royalty section - a loss is generated on the sale of the property - and that is also not correct.

There should be no capital gains or loss on the sale of the property - it should all be deferred if the price of the property acquired exceeds the net selling price of the property sold - correct? But that is not what is happening mechanically based on the inputs.

[AmyC]

Yes, all deferred. You will mark that you disposed of the property. 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.

If you did an actual 1031 exchange and paid the fees, you will use form 8824 to enter the exchanged properties.

If you need help in determining the basis for the new properties, you can see another post of mine here.

Fair warning -

There are two ways to handle depreciation after a 1031. Turbo Tax only handles one method, the single schedule depreciation. It is simple, you take your new adjusted basis, begin depreciation fresh on the new property based on the type of property. The 4 new buildings could have different depreciation schedules.

[Jaegerml]

Still confusing.  Sold one property and purchased 4 new ones.  Treated the old property as sold and TT is showing a capital loss on the property sold or exchanged. 

Sold for $2,000,000 less $100,000 of expenses - net $1,900,000.  Adjusted basis of this property - original cost $500,000 (building $425,000 and land $75,000) less depreciation of $125,000 leaves an adjusted basis of $375,000.  SP of $1,900,000 less adjusted basis of $375,000 is the deferred gain - per the 8824 form.  

Entered all of the new properties at their cost #1 $750,000, #2 $750,000, #3 325,000 #4 for $275,000 for a total of $2,100,000 cost vs $1,900,000 net selling price.  Entered each of the new properties in the rental section and indicated they were not purchased but part of a like kind exchange.  

However, if I don't put the selling price of the old asset in the sale of the business property section - TT shows a capital loss on the sale of the land and a portion of the property and then hits the return with passive losses.  This loss should not show up and I don't know how to fix.  

I want the old asset off the books or to stop depreciating - how can I make this happen?  And I need the 4 properties listed separately for future years.  Is the basis of the new properties supposed to equal the deferred gain?  

The instructions above appear to be what was done but the numbers don't work.  

[DianeW777]

First, you don't want to mark the original property as sold if you did a 1031 exchange. The point of a like kind exchange is that you can defer gain and the new property is treated exactly like the old property given up, with the exception of the additional buy-up or cash paid.  

The property received is the same cost basis (not selling price) of the old property.  You can add to that only if you paid additional money for the new property above and beyond the cost basis (less all prior depreciation) of the property given up. Once you have the cost basis of the old property and the additional cash buy up for the new four properties then you can determine the cost basis for each of the new properties. It would be two assets for each new building:

1. The appropriate portion of the old rental - retains the same date acquired and prior depreciation as the original building
2. The appropriate portion of the additional cash paid - new asset, depreciation begins in 2022
   1. You can use value or square feet to apportion the two amounts for each new rental buildings

Please update if you need further assistance and one of our tax experts can help.

@Jaegerml