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

[DHorjus]

How is this done in Turbotax Home & Business?

[AmyC]

There are two ways to handle a 1031 and TurboTax can only use one method. Click the link for more detailed info on 1031 Exchanges.

Cost basis of the new property = cost of new property - deferred gain from original property.

For example:

• Buy building A, original cost $250,000 ,depreciated $150,000, sold $400,000
• if sold, A would have gain of $300,000 but instead did a 1031 exchange.
• Buy building B for $500,000.
• Cost basis for new property B is $500,000 -  prop A gain $300,000 = $200,000

The adjusted basis of building A is the exchange basis.

Excess basis = cost basis for new property  - adjusted basis of building A

For example:

• Building A   adjusted basis is $250,000 -dep $150,000 = $100,000 = exchange basis
• Building B $500,000 purchase price
• Excess basis = purchase -exchange
• Excess = $500,000 - $100,000 = $400,000 excess basis

The adjusted cost basis is the purchase price minus the deferred gain from the property sold. 

From my example above:

Cost basis for new property B is $500,000 -  prop A gain $300,000 = $200,000

1031 Exchange - Internal Revenue Service

If you have two properties, you will want to allocate the deferred amount based on prices. If building B above plus building C were purchased then:

• Building B purchase price $500,000
• Building C purchase price $300,00
• Then building B is 500/800 =62.5% of replacement to take that portion of the deferred gain.
• Building C is 300/800 = 37.5% of the deferred

@DHorjus

[snowbug]

This is by far the most comprehensive response I've see when searching for instructions on how to enter 1031 exchange transactions in Turbotax. Thanks for your help!

[userZ]

I agree with most of you say, but I think there are issues with the "Excess basis" in your calculation. The Excess basis can not be larger than the total basis (which is $200,000) for the replacement property.  It  can be calculated by two ways:
1. total cost of B + cost of selling A - sold price of A= 500,000 - 0 - 400,000=$100,000 ;

or

2. total cost basis of B - the adjusted basis for A= 200,000- (250,000-150,000) = $100,000;

[Molly66]

Randy, thank you so much for the instructions on entering 1031 exchanges in Turbotax! I am working on my 2021 return and had an exchange in 2021. Worked on it for 2 days to no avail and was ready to call it quits and go to a CPA. Then I found your article, even though your instructions were for 2019 returns it works for 2021 also. Really disappointed TurboTax dropped the ball on this. You would think with the Premier edition it would provide better instructions on how to enter the data. Anyway, thanks again, really appreciate your contribution!

Ron

[Critter-3]

The TT DIY  program is not set up for complex tax situations so if you don't know what you are doing in a certain situation  then a DIY program is really not going to help you enough  ... seeking help from one of the LIVE upgrade  options or  using a paid tax pro for years with these messy situations are the options available to use. 

[tagteam]

---

@Critter-3 wrote:

 ... seeking help from one of the LIVE upgrade  options or  using a paid tax pro for years with these messy situations are the options available to use. 

---

I agree and @Molly66 should refer to the following article at the link below before entering the exchange in TurboTax.

Trying to oversimplify these transactions can create a rather large mess.

Completing a like-kind exchange in the 1040 return - Intuit Accountants Community

[malletshop]

I too performed a 1031 exchange in 2020 using form 8824 'Like-Kind Exchanges".  The year I received the like-kind exchange was in 2021. The question that I have now is that the transferred property is still showing up as a rental property in Turbo Tax Home & Business. Do I delete it? And do I add the received like-kind exchange since it's not showing up, or do I simply edit the transferred name and rename it since I would think it was never disposed of in Turbo Tax, but exchanged. Hopefully someone knows the answer to this. Thanks in advance - sw

[randoodle]

If you did the like-kind exchange properly in TurboTax for TY2021, then you should not have this issue. 

• When doing the like-kind exchange, the new asset should be added using the exchanged cost basis with depreciation pro-rated for the TY2021.  The new asset and its depreciation schedule should move forward in subsequent tax years.
• The old asset should have taken out of service for TY2021.  If you've itemized aspects of the old asset, you must take all those items out of service.  Taking the asset out of service causes causes remaining loan charges to be expensed.  If the old asset was removed from service, it should not move forward in subsequent tax years.

If  you are not seeing your new asset and are still seeing your old asset, then you likely did not do the 1031 exchange correctly.

[malletshop]

I use Turbo Tax Home & Business. I did not report the sale on 4797 but on Form 8824.  Part 1: listed like-kind property given up and received with the dates. Part III lists the realized gain/loss, recognized gain, basis of like-kind property received. The property given up was in 2020. The property gained was in 2021. The like-kind period overlapped two tax years. So, this year I am to add the like-kind received on Sch. E  (I couldn't add it last year since it wasn't received in TY2020.)  Seems to be working now!

[Osc-ris5]

@randoodle and others,

Randy, thank you so much for writing this post back in 2020 - it helped me a lot.

I am still running into one issue related to your #6 under Section 2 - new rental property.

"Complete the Assets/Depreciation section.  Add an Asset for the Rental Real Estate Property.  When you get to the Cost, enter in the Cost Basis of the new property that was calculated back in Step 1 above (you wrote that number down)."

Your instructions seem to indicate that you added a new Asset for the new property. Do you mean that you added an asset in addition to the property itself? I am asking because TT online will not allow me to go through the New Rental Property process with my acquired/new property.

Specifically:

1. In the rental property info page, I start by clicking "Start" for New rental property under Assets.

2. Click continue on the next screen, then answer the following three questions: 1) Was property your residence? - No. 2) Did you purchase this property? No. 3) How did you acquire this property? - I acquired this rental through a like kind exchange.

3. Click Continue. This brings you to this screen:

This screen seems to indicate TT is about to ask you for the info listed...basis etc.

However, when I click "Continue" on this screen, TT just takes me back to the basic rental property info page, and the New rental property asset is still marked as "Needs review". It is a circular loop.

So, this is why I am unsure how to enter the basis of the new property in order to calculate depreciation. Entering a new asset in addition to the rental property itself seems like the only option available in TT online.

Any help is much appreciated!

Zach

Btw, I have contacted TT personalized expert support 4 times with these challenges. They do not seem to know the answer on how to enter 1031 exchanges properly in TT.

[MarilynG1]

When you are "back to the basic rental property info page, and the New rental property asset is still marked as "Needs review"  can you click on 'Needs Review'?

[randoodle]

@Osc-ris5 ,

I think you are a victim of the clunky ordering of the questions by TurboTax.  Once you have calculated your cost basis from the like-kind exchange (Form 8824), you must go back and enter that information.  The "New rental property" can consists of multiple assets.  The primary asset is the building itself (cost basis from form 8824).  However, you may have other assets (improvements) that you added, such as a fence, a shed, a garage, etc.  Your "New rental property" needs review; specifically, you need to go back and add the assets to the property.

I hope this helps.  (I'm not familiar with the online version, I always download the latest version on the PC.

Blessings.

Randy

[Osc-ris5]

@randoodle @MarilynG1 

Thank you both for your replies. After posting, I decided to try entering the new rental property basis as a new asset, as I had described. It seems to have worked. Here are the details:

In Rental property info, I clicked on "Add expense or asset". Under Assets near the top of the page, the box for the property itself was already checked. I also checked the next box down under Assets, for Improvements, furnishings and other assets.

I then clicked Continue at the bottom. The next screen included the option to select residential rental real estate, so I did. Then I was able to enter the basis, land value, etc. TT then calculated the depreciation schedule over the 27.5 years and a partial year of depreciation for 2021 using the date the new property was acquired. It even showed me the depreciation worksheet at the end, and it all seemed correct!

When I finished this process, TT took me back to the rental property info page, and now the New rental property Asset no longer has the Needs review tag.

I think it just might have worked! I hope this helps someone else who runs into this confusion.

[malletshop]

HI Randy

TT Expert advice isn't really addressing my question. Hoping you can answer this since it seems like you know how to handle a 1031 exchange in TT. 

I performed a 1031 exchange in 2020. The property given up was acquired AND put into service on 10/04/2005. The property received was in 2021. I filed form 8824 smoothly in 2020. I am entering the property received on tax year 2021's return. My question has to do with the schedule E. Which date am I to use for the property received? Do I enter the actual date I acquired it which is 3/15/2021 or the date I acquired the original property "aka the like-kind property given up/relinquished" which is 10/04/2005? My understanding is that I am to use the date of the property given up, since the property received is simply exchanged, and all the depreciation needs to move to the property received. Thank you - sw