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contactla
New Member

Shouldn't my new rental property (basis over 200k) retain the basis of my prior commercial property (basis around 57k held for many years) in like-kind exch. Am I wrong?

I sold a commercial property in 2016 and did a like-kind exchange for a rental house. I thought the basis of the old property would be the basis of the new property, but TurboTax shows the new property with a much higher basis. Am I misunderstanding property  basis after a 1031 exchange? The old property shows depreciable basis of approx 57k. TurboTax set the new property basis at approx 225k. No profit was made in the sale of the old property, in fact I had to contribute about 30k in cash to the new property. Please help, as I may have to amend my return but I thought Turbo Tax was doing all the basis figuring for me.

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Accepted Solutions
kerriP
Level 1

Shouldn't my new rental property (basis over 200k) retain the basis of my prior commercial property (basis around 57k held for many years) in like-kind exch. Am I wrong?

for a 1031 exchange the basis in the replacement property is the value of the replacement property less the amount of gain deferred in the exchange (or plus the amount of unrecognized loss). In your example, you would have 57,000 then add the 30,000 cash you gave up.  Did you assume any liabilities?  If you did, that would increase your basis in the new property.

Here is an example:

Taxpayer exchanges a relinquished property with a value of $1,000,000, mortgage of $500,000 and a basis of $500,000 for a replacement property with a value of $1,500,000, a mortgage of $900,000 and the taxpayer adds cash of $100,000. The basis is computed as follows:

Basis of Relinquished Property $500,000 
Plus: Liabilities Assumed by Taxpayer + $900,000 
Plus: Amount of Cash Paid + $100,000
Less: Liabilities Assumed by Buyer – $500,000
Equals: Basis in Replacement Property = $1,000,000

I would look at the 2016 return and check to make sure it was correctly handled.

View solution in original post

3 Replies
kerriP
Level 1

Shouldn't my new rental property (basis over 200k) retain the basis of my prior commercial property (basis around 57k held for many years) in like-kind exch. Am I wrong?

for a 1031 exchange the basis in the replacement property is the value of the replacement property less the amount of gain deferred in the exchange (or plus the amount of unrecognized loss). In your example, you would have 57,000 then add the 30,000 cash you gave up.  Did you assume any liabilities?  If you did, that would increase your basis in the new property.

Here is an example:

Taxpayer exchanges a relinquished property with a value of $1,000,000, mortgage of $500,000 and a basis of $500,000 for a replacement property with a value of $1,500,000, a mortgage of $900,000 and the taxpayer adds cash of $100,000. The basis is computed as follows:

Basis of Relinquished Property $500,000 
Plus: Liabilities Assumed by Taxpayer + $900,000 
Plus: Amount of Cash Paid + $100,000
Less: Liabilities Assumed by Buyer – $500,000
Equals: Basis in Replacement Property = $1,000,000

I would look at the 2016 return and check to make sure it was correctly handled.

View solution in original post

flanneryd
New Member

Shouldn't my new rental property (basis over 200k) retain the basis of my prior commercial property (basis around 57k held for many years) in like-kind exch. Am I wrong?

Thank you TurboTaxKerriP!
flanneryd
New Member

Shouldn't my new rental property (basis over 200k) retain the basis of my prior commercial property (basis around 57k held for many years) in like-kind exch. Am I wrong?

I don’t quite understand your example, and I have exactly the same scenario and question. I think the interchangeable terminology is confusing me.

In your example, is “Basis of Relinquished Property” the same as “Depreciable Basis” from Form 4562, Depreciation and Amortization Report, for the relinquished property?

I understand “Liabilities Assumed by Taxpayer” is the amount of the new mortgage taken out to purchase the replacement property. (Mortgage is needed because the replacement property costs MORE than the sale of the relinquished property produced.)

Is “Amount of Cash Paid” the additional out-of-pocket cash paid when purchasing the replacement property, EXCLUDING any monies held (proceeds from sale of relinquished property) by the Like-Kind Exchange Accommodator?

What does “Liabilities Assumed by Buyer” mean? Who is the buyer and the buyer of what? Is this referencing the existing mortgage balance on the relinquished property, that is paid off as part of the sale of the relinquished property?

Then your example says “Basis in Replacement Property =.”
Is this the same as “Basis OF Replacement Property?”
Should this calculated value be the “Depreciable Basis” on Form 4562, Depreciation and Amortization, for the replacement property?

I filed Form 8824 for the Like-Kind Exchange, with my 2016 tax return, and I believe the information in that form is correct. My bottom line questions:
1. Should the "Depreciable Basis" for my replacement property EQUAL the "Basis of like-kind property received," Form 8824, line 25, from my 2016 tax return?
2. If so, how do I get TT Premier to input the correct information?

See my question from yesterday: <a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/4433970">https://ttlc.intuit.com/questions/4433970</a>

Right now, after going through the TT Premier interview questions for my replacement property, TT definitely is not making the connection between my relinquished property and my replacement property.

Is Turbotax Premiere sufficient to get these values entered correctly, or do I need to upgrade to Turbotax Business? And if I need to upgrade, will I have to start my taxes over with TT Business or will it take what I’ve already entered into TT Premier an go from there?

If TT Premiere can get the job done, then how? Seems like I will need to go into Forms and make specific changes on specific forms, which I’m really not sure about doing…

Thank you for your help!
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