Completed 1031 exchange is not reducing capital gains

[chill444]

Hi. I completed a standard 1031 exchange, sold old rental and bought a new rental 30 days later for an increase to the mortgage amount and purchase price. I have completed forms 8824 and 4797, but the $300k in deferred gain on the completed forms is not reducing my capital gains amount on 1040. Causing a large tax hit. Form 4797 line 16 shows no entry.

Thank you!

[Hi Palms]

If you had no boot and did a standard exchange you shouldn't have a 4797 at all. You must have entered the figures wrong.

[chill444]

Thank you for your help... This is the first 1031 I have done. To my understanding I should not have a boot, but please correct me if I am wrong. Sold a SFR for $410k and bought a SFR for $610 within 30 days. Paid off a mortgage of $187k and acquired a mortgage of $237k on the new purchase. I did have to split the numbers between land and building inside of TT, but I tried to follow the instructions diligently. Not sure what question in TT triggered the 4797 form.

[Hi Palms]

You should not have had boot with those numbers. There must have been some sort of error when the transaction was keyed into the program. Unfortunately, no one can see your return so you might have to call customer service to find the error.

[chill444]

So... I chatted with a TT support person as I was confused why the gain continued to transfer over. One item she had me do was to delete the rental property asset from the Assets/Depreciation section of the rental profile. This removed the form 4797 and the capital gain, but this did not feel like the correct closure for the asset. The form 8824 is there and showing the deferred gain.

Does this make sense that the asset would be deleted since it was sold under the 1031 program?

[Hi Palms]

---

@chill444 wrote:

Does this make sense that the asset would be deleted since it was sold under the 1031 program?

---

I think so because you most likely made some sort of error when you first keyed in the transaction. You shouldn't have a 4797 at all, just an 8824. 

I'm not sure about the program functionality here but I believe the correct way to do this is to use the section where you indicate you did a 1031 exchange and start there.

[AATUSK]

First time doing 1031 exchange as well. Went through the same issue. These messages were very helpful in figuring out where to look.

I had this question - " The item was sold, retired, stolen, disposed of converted ...."  in the section "Tell us more about this rental asset" checked. This is under the Business Income & Expenses tab.

Once this question was unchecked; sale of business property will revert to zero

This also removes 4797 from the return.

In a Like-kind exchange the original asset is not being sold (on paper).