Like-Kind Exchange

[suncowiam]

I am reporting a 1031 exchange on my taxes.

I reported a like-kind exchange from turbo-tax.

Do I also have to report the sales of the rental property that was involved in the 1031?  When I do this, it shows a capital gain and increases my tax-burden.

The instructions aren't clear as to what I need to do.

[tagteam · Accepted solution]

No, do not report that the property relinquished was sold; indicate the property was given away (but not donated to charity) as of the date of the exchange. 

[suncowiam]

Appreciate your feedback.

The tax software should automate this to ensure that no issues/errors can result from it.

These manual solutions are hacks and could possibly bring scrutiny from the IRS.

[tagteam]

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@suncowiam wrote:

These manual solutions are hacks and could possibly bring scrutiny from the IRS.

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I agree, except a lot of these entries actually just appear on worksheets in the program (that you retain for your records) and do not get transmitted to the IRS. 

Regardless, the program, at this stage of development, should handle this type of transaction without having to resort to any manipulation (i.e., automatically throughout the entire process).

[suncowiam]

@tagteam 

I just finished my taxes but not sure if these calculations are correct.

The property I relinquished in the like-kind exchange is being reported in form 4797, "Sale of Business Property".

There are two entries for the same property that was relinquished:

2392 Taproot Court           02/01/2010 05/08/2019   0.   34,308. 102,000.   -30,831.
2392 Taproot Court Land 02/01/2010 05/08/2019   0.   0,            98,000.     -44,636.

I see that the two entries amount to the improvements and the current list of depreciating assets.  The second entry is the land amount, when I purchased the property.

The gross sales price is set to 0 for both.

Turbo tax is also reporting the same property to have a passive activity loss fo 180k in the passive activity loss worksheet when I only reported a loss of around 15k on my schedule E for the same property.

How are the depreciating assets calculated in the sale of a property that is relinquished in a like-kind exchange?  This is giving me a huge tax boost to see this negative number as it is offseting my rental income gains.  Is this expected?  I just don't want to deal with the IRS later on, if this is invalid.

Thanks

[suncowiam]

Hi @tagteam 

I just finished my taxes and saw that my passive activity loss (Form 8582) for the same property that was relinquished to be rather high.  I did have a loss for this property for this year but it was much less.  I'm assuming TurboTax is somehow calculating more losses based on the depreciating assets/bonus depreciations I've entered for the property.

On form 4797, it lists two entries concerning the property that was relinquished.  The first entry is the bonus depreciations(e) + the initial improvement value(f).  The second entry is the initial land value(f).  Both entries have a gross sales price(d) of 0.  However, line 7 total only matches the total rent income (line 26) of my schedule e, which is the income from all my rental properties.

Basically, turbo tax is reducing my passive activity income to 0 because of this relinquished property.  Is that correct?  How should the bonus depreciation and property depreciation be calculated in a like-kind exchange?

Thanks

[suncowiam]

Hi @KatrinaB48,

This thread best describes my issue.  I was wondering if turbo tax is calculating the sale of my property correctly in a like-kind exchange.  It is the same property that I relinquished in the exchange.  The above post to tagteam best describes it.

Thanks

[tagteam]

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@suncowiam wrote:

Hi @KatrinaB48,

This thread best describes my issue.  I

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Which thread? @KatrinaB48 has not posted to this thread; you must be referring to a different thread.

Regardless, you should be reporting your 1031 exchange on Form 8824 and it appears as if you might be entering the transaction in the wrong section of the program. 

[suncowiam]

@tagteam 

I reported the exchange in turbo tax and it did report a 8824 form.

But it also reported a 4797 form with the same relinquished property as described earlier.

Do you know how to deal with the depreciation and bonus depreciation of a rental property that is relinquished in a 1031 exchange?

[tagteam]

I am not certain how bonus depreciation factors into this transaction since it is not allowed for residential rental real estate. I am also not certain why a 4797 was generated unless there are additional details you did not provide.

Frankly, you should try contacting Support, via the link below, since you appear to be struggling with getting the exchange entered properly. Support has helped other users enter exchanges in the correct manner.

https://ttlc.intuit.com/community/using-turbotax/help/what-is-the-turbotax-phone-number/00/25632

[suncowiam]

Thanks

[UT1470]

I can't get Turbo Tax to take me to the 8824.  I sold a Rental and purchased Real Estate, had a gain on the sale.  I marked sold on the asset sheet of my Sch E.  Got a message about entering the new Land as an asset.  Tried that and the program still didn't generate the 8824.  I used the Jump to link for Like Kind and marked additional Like Kind exchange.  Next screen showed what appeared to be a business or asset, not sure, that said Copy with an edit or delete option.  I chose edit and it took me back to the asset sheet of the rental.  You'd think I'd just get the nice straight forward questions that is on the 8824 and not a jumble of input screens. Wondering if I need to manually prepare the 8824 and override entries on Turbo Tax to get this like kind transaction completed.

[tagteam]

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@UT1470 wrote:

I can't get Turbo Tax to take me to the 8824.  I sold a Rental and purchased Real Estate, had a gain on the sale.  I marked sold on the asset sheet of my Sch E. 

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First of all, did you actually do a proper 1031 exchange (did you use an intermediary, aka exchange facilitator)? Hopefully, you did not take actual or constructive possession of the proceeds from the sale.

Otherwise, do not indicate that you sold the property in the Property Profile section of the program.

[Shiney2]

I believe that an asset is characterized as 'given away' by entering a zero sales price.  But this will generate a loss, and will conflict with the entries on Form 8824.  I filled out 8824 manually with my own adjusted basis calculations which included asset depreciation through the date of sale.  I did this manually because I relinquished two properties and purchased one replacement property (don't think the  step-by-step handles this according to my conversations with TT support).  The result was carried to Schedule D (there was a small amount of boot).

To generate a 4797 loss (or series of losses - one for each asset entry) would generate a loss "outside" the 8824 bottom line/adjusted basis. It seems that I should merely enter each asset as being sold for the remaining basis on the date sold, which is the original cost less depreciation through the sold date as calculated for the year of the tax return when I entered the sold date on the asset entry.  Is this correct?

Further to this: Since my gross selling costs were included in the manual 8824 calculation, I entered a zero expense of sale on the asset entry worksheets.  This way there is zero gain or loss on the asset entry and  propagated to the 4797 and the whole transaction "falls back to" the manual entries on 8824 as transferred to Schedule D.

And, YES, I used a QI for the complete transaction.

[irenajanev]

I sold rental properties in 2021 and did a 1031 exchange.  Since I am not supposed to check the box "I sold this property", where should I indicate that "I gave the property away"?

On a separate note, I have sold 3 properties and purchased 2 houses, so can Turbo Tax Premier handle such a complex 1031 exchange?  Some of the leftover funds from the first exchange were utilized in the second exchange, so I am not sure how to make it clear.