1031 Exchange expenses

[kashblack1953]

In stepping through a like kind exchange I come to a screen where TurboTax is asking for any sales expenses, which includes:

Sales expenses include the following:
- Sales commissions
- Advertising expenses
- Legal fees
- Loan charges paid by the seller, such as loan placement fees or points
- Broker fees
- Transfer taxes
- Option premiums

This in turn populates line K (Exchange expenses total) of the smart worksheet for line 15 of Form 8824. Unfortunately what is requested are only the expenses associated with the relinquished property, not the qualified intermediary fee and costs associated with the purchase of the replacement properties. Where are these costs entered?

[tagteam]

See https://www.irs.gov/instructions/i8824#en_US_2022_publink12597kd0e518

Line 15 and Line 18

[kashblack1953]

Thanks! I have read the IRS instructions. My question is where in TurboTax are these expenses entered? 

[tagteam · Accepted solution]

In the interview for "Exchange expenses".

Any other expenses will have to be entered in Forms Mode on Form 8824 (which may require an override voiding the accuracy guarantee and most likely preventing the return from being e-filed).

[kashblack1953]

The exchange expense input is for the property being disposed (sold), not for expenses associated with the exchange or replacement properties, such as qualified intermediary fees and closing costs. I tried entering these costs with the property disposal costs, however this reduces the deferred capital gains, which isn't correct. I tried manually editing form 8824, however I don't know how to handle the AMT entries. This seems to be an omission, how is this brought to TurboTax's attention? 

[tagteam]

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@kashblack1953 wrote:

.............how is this brought to TurboTax's attention? 

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It already has been brought to their attention and is, quite frankly, low priority.

[kashblack1953]

Sad - because it's a pretty straight forward fix. All that's needed is to add a screen to enter expenses associated with the replacement property acquisition and move the logical test for if the replacement costs is less than the net of the property that is disposed until after the disposal and acquisition costs have been entered. As it is the like kind exchange feature should be disabled since it won't allow a user to properly account for this type of a transaction. Support at TurboTax told me I that I should purchase professional tax software if I wanted it done correctly. How does TurboTax's guarantee and audit defense work in this situation?

[tagteam]

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@kashblack1953 wrote:

How does TurboTax's guarantee and audit defense work in this situation?

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Good question, but the answer is that they do not work due to the fact that multi-asset exchanges are not supported.

[kashblack1953]

Good try, but the issue is the same with a single asset being exchanged. Program isn't doing the accounting properly