1031 Exchange for Rental Property: end-to-end question

[Vic_R]

@erictt 

Yes that is what I meant: sorry trying to find the right language is challenging.  Assuming you are referring to breaking up the improved value into the structure (27.5 years), landsc...Most don't hold a property long enough to ever fully depreciate the structure, and depreciation is a...

[Vic_R]

@erictt why is my response getting chopped up and shortened?

[Vic_R]

@erictt  I'll try to respond again.  Yes in that context I referred to the "new basis after the deferment by "adjusted basis" which I understand was a poor choice of words.

Regarding splitting up the improved portion of the property's value, yes I typically split this up to the structure, landscaping improvements, appliances, carpet, etc. and typically for items less than a certain amount you can take the entire depreciation as a one time deduction that year, and that of course depends on your own financial situation and strategy.

Regarding using the "new cost basis" from 8824 for the replacement properties yes that does appear to be consistent with the instructions and Pub 527, but I still want to double check with an expert to see if there is any alternate strategy as I hate to reduce the depreciation on the new properties by such a huge amount.  I had thought this only came into play later when you sold and used it to calculate your gain at that point which yes would continue to grow as you recapture all that depreciation, but as long as you are moving up and the numbers make sense I don't see the harm.

[Vic_R]

@AmyC Following up.  I split the "new basis" (calculated on Form 8824) for the replacement properties equally based on the percentage to the total price.  From a strategy pov, if this is not required, then it occurs to me that you could carry forward as much of the gain as possible in one property that you plan to keep forever, such as a new rental that you plan to move into some day in the future.

BTW, the standard "rule" that you defer the gain if you move up in SP and debt seems flawed to me.  If you move up in SP and take "too much" new debt then you will receive cash (boot) and pay capitol gains tax which really turns the exchange into a partial exchange.  Note: Form 8824 takes the new debt - old debt and adds that amount to the "adjusted basis", but what if you put a bunch of cash into the property in place of new debt?  I'll have to look again but it seems like 8824 should have an entry for "cash into the exchange".

Thanks,

Victor 

[Vic_R]

@AmyC @tagteam @Husam22 @erictt 

It seems pretty clear that yes your new depreciation schedules should be based on the new adjusted basis for the replacement property (per line 25 of 8824).  I was just wondering if it has always been this way or a fairly recent change?

I did an exchange back in 2015 and my memory is that Turbo Tax said to print out form 8824 and save it in your records because if you sold the replacement property that is the basis you would use to calculate your gain for that sale.

Thanks,

Victor

[AmyC]

The tax laws changed in 2018 and affected many areas, including the 1031, see IRS News Aug 2018 and this year saw Like-Kind Exchanges - Real Estate Tax Tips | Internal ...

For kicks, here are the old  Instructions 8824 (2015) from your last exchange.

[Anonymous]

I had passive rental loss carryover of about $50,000 in property given up.  In 1031 exchange, where does this loss carryover being included?  Add it to the adjusted basis of OLD property at exchange date?

[Anonymous]

*Solved* in https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/we-sold-a-rental-prop...

Q:  Form 8582 Worksheet Allocation of Unallowed Losses lists the passive activity carryover loss with the sold property. How does the passive activity loss carryover get converted to the replacement properties?

A:  When you are the screen "Do any of These Situations apply to This Property?"  you can  make the selection that applies to your situation by marking those that  apply from the list available.

Scroll down to the carryover, when you check the next screen gives you a place to enter the carryover

Thanks to dermel for the answer.

[jasonmhatch1968]

Randy-do you know if you take some cash out of the sale of the first property, but use the majority for the replacement property in a qualified 1031, where you enter that cash out?  and where you calculate the pro-rated depreciation?

thanks,

J

[randoodle]

@jasonmhatch1968 

Sorry, I have no experience with that.  Hopefully, someone else who has done that can help you.

Randy

[mw29]

Hi @erictt - Where do I find these forms menu? I can't seem to find them anywhere on my screen... Help!

Has anyone else been able to get the 2 depreciation schedules entered?

[jasonmhatch1968]

thank you Randy.

[mw29]

@Vic_R  - So in your example, what number do you put as your cost then? Do you put the real actual purchase price (structure only obviously) in this case 140k?

[Vic_R]

@mw29 No, I used the " new basis" which is calculated on 8582, line 25.  I read multiple publications which convinced me I had been doing this wrong.  This was a while ago now, but what I recall is that the new cost basis in the new property is essentially the adjusted basis from property given up plus acquisition cost of the new property.  The "adjusted basis" is carried forward to the new property, the whole point of a 1031, but if you ever sell it will all be recaptured and you'll pay the tax man.

[mw29]

@Vic_R  - So in your example earlier with 140k depreciable building property you acquired, which one is the new basis? Was it not listed in that example?