I sold a rental property, did a 1031 exchange, and purchased a replacement rental property. I am having trouble reporting the whole process to TurboTax, in particular the sale of the old rental property.
I am running into confusion when trying to report the sale of the old property.
Now, what should I enter for the Sales Information here?
If I enter sales data here, the underlying forms create a Schedule D and Form 4797 showing the gain from the sale of the old rental. This seems like an error as the gain is not being deferred and it's creating a huge tax burden on that gain.
Should I leave this Sales Information section blank, since it was reported in the 1031 like-kind exchange section (Form 8824)?
This seems like this is the way to go as it simply adjusts the depreciation to a partial year and does not create a Schedule D and Form 4797.
I appreciate any advice on how to enter this information correctly. It seems a little convoluted.
Thanks.
Randy
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@randoodle wrote:Should I leave this Sales Information section blank, since it was reported in the 1031 like-kind exchange section (Form 8824)?
Yes. The primary form you prepare for a 1031 exchange is Form 8824. Do not enter any "sales information".
@randoodle wrote:I appreciate any advice on how to enter this information correctly. It seems a little convoluted.
It is a LOT convoluted and, frankly, TurboTax does not handle these transactions easily. There is an article you might want to read regarding depreciation (as well as other aspects of an exchange) at the link below.
https://www.fool.com/millionacres/taxes/depreciation/depreciation-after-1031-exchange-how-it-works/
If you are still confused, or have issues, I would recommend contacting phone support (link below) as I have read accounts where they have been able to walk some users through the process of entering the entire transaction in TurboTax.
https://ttlc.intuit.com/community/using-turbotax/help/what-is-the-turbotax-phone-number/00/25632
The whole process is a bit convoluted with respect to the order of doing things and the answers to the questions. The help screens are scattered here and there, the information is not in one place.
Here's what I did using Turbotax Premier...
That should be it.
To summarize the confusion:
I hope this helps. Please let me know if it works for you.
Randy
@randoodle wrote:Should I leave this Sales Information section blank, since it was reported in the 1031 like-kind exchange section (Form 8824)?
Yes. The primary form you prepare for a 1031 exchange is Form 8824. Do not enter any "sales information".
@randoodle wrote:I appreciate any advice on how to enter this information correctly. It seems a little convoluted.
It is a LOT convoluted and, frankly, TurboTax does not handle these transactions easily. There is an article you might want to read regarding depreciation (as well as other aspects of an exchange) at the link below.
https://www.fool.com/millionacres/taxes/depreciation/depreciation-after-1031-exchange-how-it-works/
If you are still confused, or have issues, I would recommend contacting phone support (link below) as I have read accounts where they have been able to walk some users through the process of entering the entire transaction in TurboTax.
https://ttlc.intuit.com/community/using-turbotax/help/what-is-the-turbotax-phone-number/00/25632
@tagteam Thanks for the reply.
There were some instructions (More Help) about only reporting the sell date and entering the sales information in the like-kind exchange section. However, the More Help info and dialog for the sales information were quite separated in the program.
Thanks for the link from The Motley Fool.
Once I've figured out what to fill in and not to fill in, I've confirmed TurboTax is calculating everything correctly:
Randy
Hello Randy.
I'm having the same issue, and can not find any info under more help that addresses this problem.
Do you know specifically what you did in order for the numbers to populate correctly?
If I put a date of sale in the depreciation section, a 4797 gets generated.
If I do not put a date, no 4797 is generated, but the depreciation is for the full year.
Thanks,
The whole process is a bit convoluted with respect to the order of doing things and the answers to the questions. The help screens are scattered here and there, the information is not in one place.
Here's what I did using Turbotax Premier...
That should be it.
To summarize the confusion:
I hope this helps. Please let me know if it works for you.
Randy
I had a longer, more detailed reply, but it kept getting marked as spam. Hopefully this shorted version will help. Here are the steps.
Randy
Thanks for the detailed response Randy!
It looks like I got it to work properly with your instructions.
One mistake worth noting that I was also making would fall under the third step you mentioned - regarding the data for the relinquished rental property.
After your step 5 (in section 3), when asked: "Did you stop using this asset in 2019?" After answering Yes, the next question asks about the date of Sale or Disposition. I put the correct dates.
The next question after that asks about Special Handling; No
Subsequent question; Home Sale - No
Then we arrive at Sales Information. If I put in any info regarding the Asset Sales Price, Asset Sales Expense, Land Sales Price, or Land Sale Expenses - a form 4797 is generated.
Hence, I would have to leave them all at 0 for everything to work out. And that makes sense because the property was exchanged - not Sold!
Thanks again!
It looks like they "un-spammed" my detailed response. (I did ask them to do that and they did!)
I'm glad it helped you to workout your numbers correctly.
For the relinquished property, when it asks you about Disposition Information, the "Learn More" section has a vague clue about entering sales information later in the "Sale of Business Property" section. I wish it would have said "all sales information".
Since TurboTax Premier is designed for rental properties, you would think there would be a question like "Did you dispose of this property through a like-kind exchange?" If you answer YES, then skip over the sales information questions for Sch E. It is counter-intuitive to answer that the property was not sold and not report the sales information in the Sch E sections.
@randoodle wrote:Since TurboTax Premier is designed for rental properties, you would think there would be a question like "Did you dispose of this property through a like-kind exchange?"
You can actually link your rental asset information (if it exists in the Rentals section) to the data you enter in the 1031 (8824) section, but it does not appear to work very well. I suspect that might be the result of incomplete programming (TurboTax and ProSeries are similar and it appears as if these transactions are actually easier to enter into the professional software, but manual adjustments are typically required on the forms for certain, more involved, transactions).
Thanks folks! I came very close to figuring out how to file for 1031 exchange after reading this thread. However, I still have one question left regarding the depreciation. @tagteam mentioned earlier about https://www.fool.com/millionacres/taxes/depreciation/depreciation-after-1031-exchange-how-it-works/, which is also what I found earlier.
The question is, how can I actually file the two-schedule (exchanged basis vs. excessive basis) depreciation in TurboTax (I use Home & Business)?
@randoodle, your instructions above seem to treat the replacement property as a new property (option 2 in the link). For that, you need to make an election out. How do I make that election in TurboTax if I choose that option?
That makes sense to use the new basis (as a result of the deferred gain) as the cost of the new property so you don't have to go back and find it someday if/when you sell AS long as this doesn't mess up the depreciation schedules which would have to be based on the actual price you paid for the property. No-one mentioned this, but in case you are selling one property for example and purchasing say 3, I am lumping the 3 together as one for the form 8824, and splitting up the new basis by percentage to the new properties. I'll try this approach and if it doesn't work I'll update this thread.
@Vic_R You can lump them all together. But, if you decide to sell one, you will have to split them up Sometimes a little extra work at the beginning is worth it later.You listed all the properties for the exchange in the 1031 paperwork. All of the exchange paperwork is completed first. When you go to the schedule E, you can split them up with their individual basis - if desired.
@randoodle, your instructions above seem to treat the replacement property as a new property (option 2 in the link). For that, you need to make an election out. How do I make that election in TurboTax if I choose that option?
Yes. The replacement property is treated as a new property, except:
I'm not sure how to enter the data if you do an election out.
That's what I have always done, but I have not used the new "carry forward basis" to calculate the depreciation on the replacement property. In years past, Turbo Tax said to print out the 8824 for your records so that someday when you sell the replacement property you would have the "adjusted basis" to use when calculating the gain. If I use the new basis for the replacement property, my depreciation is wipe out, and that is one of the major advantages to owing rental properties, and someday when I go to sell I would have to recapture that in the gain (using the basis from the last exchange) and possibly defer that in the next exchange as long as the numbers work. For example, property cost $180K, but the adjusted basis resulting from the exchange deferment is $42K. For simple purposes say the structure is $140K (78%) and would be depreciated over 27.5 years, or $5,091/yr. If I use $42K as the cost the annual depreciation would drop to $1,191; obviously a huge difference.
This is consistent with the instructions under "learn more" when entering the cost.
Disclaimer: I'm just a TurboTax user, not a tax professional. Please correct me if I said anything wrong.
First, I'm glad to report I found how to file the two-schedule depreciation (as well as how to elect out of it). Follow the instructions in https://proconnect.intuit.com/community/help-articles/help/1040-completing-a-like-kind-exchange-of-b... (it's pretty hard to find!).
Once you've input the numbers for the exchanged basis as an asset in the "Asset Entry Worksheet", double check the "Asset Life History". It should show a shortened depreciation schedule as the early years of the depreciation has already happened when you held the relinquished property. On the other hand, the excess basis should have a full 27.5-year depreciation schedule spanning 29 years.
Second, why is the two-schedule depreciation better than the simpler alternative? Because it's more accelerated (due to the shortened schedule)! Moreover, my replacement property has a lower building cost (and higher land value) than the relinquished property. Doing the two-schedule depreciation allows me to continue depreciating the previous higher building cost. My excess basis, which isn't much, is all land value after adjustment. I still allocated $1 of it to the building cost so I have a 27.5-year depreciation schedule averaging $0 per year on record. If someone thinks this should be done differently, please let me know!
@Vic_R, when you say "adjusted basis", do you actually mean Line 25 (Basis of like-kind property received) on Form 8824? That is the "new basis" of your replacement property (and the sum of the exchanged basis and excess basis if you use the two-schedule depreciation). In your example, I don't think you can depreciate $140K. You can only depreciate the building portion (with a reasonable way to allocate it, e.g. 78%) of the $42K new basis. That's the way I understand the depreciation rules. Is this not consistent with what you read?
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