1031 Tax Exchange question

[cottagecharm11]

I sold one of my 3 rentals in 2021 using a 1031 Tax Exchange, my time using a 1031. I am trying to file my taxes before the October deadline for my extension. When I edited the rental income section for the rental is sold I checked the box that said " I sold this rental". I now know that was a mistake because I used a 1031, which meant I did not sell it for 1031 purposes. When I checked that box a  message popped up stating that I should delete the information about this rental since I sold it. There was no mention that by clicking "Done" I would delete this rental completely off my 2021 tax return, which is exactly what happened. I have owned this house since 2016.  I am wondering if I need to start a brand new tax return now in order to fix my mistake so all of the rental information will still be there from past tax returns, or if this even matters? 

[tagteam · Accepted solution]

I would recommend simply starting the exchange in the Sale of Business Property section.

[Carl]

If the rental you sold/exchanged was deleted, you need to add it back if the property produced income in 2021 prior to the exchange. You can do so manually without starting over. But you'll need information from the 2020 return to re-enter it correctly to account for all the prior year's depreciation and any carry over losses.From the 2020 tax return you'll need:

 - Form 4562. There are two of these and they both print in landscape format. One is titled "Depreciation and Amortization Report" and the other is "Alternative Minimum Tax Depreciation". You'll definitely need the first one. You'll need the 2nd one only if prompted for AMT amounts by the program.

 - IRS Form 8582.  This form shows your passive loss carry overs. If this form is not present in your 2020 tax return, that's okay. It just means you didn't have any passive loss carry overs to carry over to 2021.

Note that if the first 2020 form 4562 shows amortized costs, those are entered differently in the program and not entered as a standard "asset" per-se. Just let us know if you have separately amortized costs to enter if you need help with that. Your amortized costs would be labeled on the 4562 as something like "financing fees" or the such.

[tagteam]

With respect to your relinquished property you will need to re-enter information related to your rental income/expenses for the 2021 tax year (if you had any).

You might be better off transferring (re-transferring) your 2020 return into your 2021 TurboTax software at this point.

[cottagecharm11]

We did not have any income from this rental during 2021. There was no mortgage or separately amortized costs with this property. So it should be fine then. Thank you for your detailed answer!

[Carl]

I agree you should not need to re-enter it in your case. However, I'm not at all knowledgeable about 1031 exchanges to know if it matters on that front, or not. Others already participating in this thread can help on that front. The only thing I can think of that would matter, is the 2021 depreciation up to the time of exchange, if that even matters. But you can use the worksheets in IRS Pub 946 at https://www.irs.gov/pub/irs-pdf/p946.pdf to figure it manually, if it's really necessary on this front.

[cottagecharm11]

I have my 2020 Form 4562 Depreciation Worksheet that lists all of the depreciation that has been taken from the beginning, up to the end of the 2020 tax year. The rental was put up for sale in December of 2020, that is why there was no income or depreciation for 2021. Thanks for your advice!