Like Kind exchange split across tax years - TurboTax Premier doesn't appear to make the connection

[flanneryd]

In a Like-Kind Exchange of rental residential properties, I sold/gave up a property in Dec 2016 and bought a replacement property in Jan 2017. I documented this exchange in my 2016 tax return, using Form 8824 (via Turbotax Premier).

For my 2017 tax return, I'm adding - for the first time - the replacement property, as a rental asset and a generator of rental income. Going through the Turbotax step-by-step interview (fills out the Asset Entry Worksheet), under "Tell us more about this rental asset," I checked the box "I traded in an old asset to acquire this one." In doing so, the "Excess Basis Amount" box appears, and I entered the additional money I borrowed (new mortgage amount of $245,000) to purchase the replacement property. (Replacement property cost more than relinquished property.)

These choices appear to have Turbotax generate a "Depreciable Basis" for my replacement property (Form 4562, Depreciation and Amortization Report, 2017 tax return in-work) that does not take into consideration the 1031 Exchange. The Depreciable Basis for my replacement property DOES NOT EQUAL the "Basis of like-kind property received," Form 8824, line 25, from my 2016 tax return. This seems incorrect. Why does TT seem to not ask about or link to my 2016 tax return, Form 8824 information? These two amounts are not even close.

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?
If so, how do I get TT Premier to input the correct information?

I added 2 screen shots of these sections in Turbotax Premier.

[flanneryd]

Hello pk - I really appreciate your feedback. I'm answering in response, to possibly help others in the future, since I've already filed my return.

My reading of the IRS instructions for Form 8824, Like-Kind Exchanges, is that it would be incorrect to wait to file the 8824. My relinquished property was sold in Dec 2016 and my replacement property was purchased in Jan 2017. Quoting from the IRS instructions: " When To File: If during the current tax year you transferred property to another party in a like-kind exchange, you must file Form 8824 with your tax return for that year." As you stated, I did use the qualified intermediary ("accommodator") for this exchange, so I did transfer my "sold" property to another party in 2016. I did not see in the instructions that a like-kind exchange is not considered complete until the replacement property is purchased. (You may know more about that than me.)

Your suggestion to handle both the sale and purchase in the same tax year did occur to me, so I did try that. I went back to my 2016 filing in Turbotax and modified the Form 8824 and Asset Entries, to show (incorrectly) that I purchased the replacement property also in Dec 2016. This, however, did not change anything in Turbotax. The Premier version of TT still treated my replacement property as a regular, new rental property, and did not transfer any of the calculated values into the Basis of the replacement property.

In the end, I had to print out and study the 17 pages of Turbotax instructions for the Asset Entry Worksheet, retrieve the key values (Exchanged Basis and Excess Basis are two that I remember) from my 2016 tax return, Form 8824 Worksheet, and enter-by-hand these values into the Turbotax Asset Entry Worksheet for my replacement property (2017 tax return). Not being an expert of any kind in the area of taxes, I was very nervous to have to enter information this way.

I believe my 2016 and 2017 tax filings are correct. But the process was very time consuming and painful. IMO, Turbotax Premiere is a huge FAIL in this area. For anyone trying to use Turbotax Premiere in the future, good luck to you and you may want to consider hiring an experienced tax person, instead of using Turbotax.

[pk]

first problem with the scenario is that a  section 1031 exchange is recognized  ONLY when completed. The basic exchange  is a simultaneous transfer of the relinquished property for the new property. In actual  fact most exchanges are delayed  and/or delayed reverse exchanges.   You sold the relinquished property through transfer to a qualified  intermediary and acquired  the new property  again hroughthe same intermediary. -- thus ineffect creating a simultaneous exchange from your persepctive.   The easiest way to clear this up is to  (a) do the 2017  return as if the exchange occured in Jan  of 2017 ( that is factually correct ). This will allow all the  basis information to flow properly.  (b) go back and amend  the  2016 filing  by removing the exchange details ( relinquishing portion ). The books would then be correct, even though there should not be any tax implications.  That is my view.