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

[malletshop]

Excellent! Thank you for confirming this! - sw

[Phytergator]

All forms are available under View or Ctrl-2. I entered my 1031 info into Form 8824 and Schedule E and it seems to be working.

[TSR-1407]

Hello AmyC,

Thank you very much for your detailed examples of the Cost Basis and I really appreciate it.

I exchanged one rental property for 2 replacement rental properties.  I think I understand the principles of allocating the deferred amount based on prices.  Do I create one Form 8824 and enter 2 new assets based on the percentage of the allocated deferred gain in Rental? Or do I create 2 Form 8824?  My research seemed to have conflicting solutions on this topic.

I also received 1099-S for the exchange.  Would this complicate the reporting?

Thank you in advance.

[tagteam]

The 1099-S is more or less irrelevant in terms of reporting the exchange. Closing agents are just required to issue them.

With respect to Form 8824 see:

https://www.irs.gov/instructions/i8824#en_US_2021_publink12597kd0e204

Reporting of multi-asset exchanges.

If you transferred and received (a) more than one group of like-kind properties, or (b) cash or other (not like-kind) property, don't complete lines 12 through 18 of Form 8824. Instead, attach your own statement showing how you figured the realized and recognized gain, and enter the correct amount on lines 19 through 25. Report any recognized gains on your Schedule D; Form 4797, Sales of Business Property; or Form 6252, Installment Sale Income, whichever applies.

[lori58sf]

if your exchange meets the 3 properties or equal or less of 200%, e.g., 1 relinquished for 2 replacement, and all finished in 180d and identified in 45 d, then you only need to do one form 8824.  On line 1 enters SUMMARY.  then you provide detailed statement for each replacement.   detail is basically answer all lines on F8824 but in your statements.  SO do not create more than 1 form 8824.    per your description, it seems your exchange is all like-kind and only 1 group.  

[TSR-1407]

Thank you both. 

Yes I was wondering what does the "more than 1 group" mean.  All properties are real estate investment rental properties.

For the summary in the single Form 8824, what date do I put then?  The two replacement properties have a slight different identification date and acquisition date - all within the 45-day and 180-day limit of course.  

[tagteam]

You should attach a statement for this scenario.

I cannot stress enough that guidance from a local tax professional is highly recommended.

Note that you also need to decide whether or not to elect out of the like-kind exchange rule.

[lori58sf]

re group:  if rental property and car (or machinery, or any other  non rental property ) is involved then they are not the same group and you need to separate.  yours per description is all the same, hence single group . 

are you doing paper form and not electronically filing your return?  if so, you just put SUMMARY on line 1 and line 2 "see additional statements".  no need to put dates

if you are using TT to fill F8824 then dates are required.  TT does not recognize SUMMARY , perhaps it is a nice change on their software going forward as most 1031 are involved either up to 3 props or =/< 200% value of sale proceed.  Anyway, you still put relinquished purchased and sale date.  And you put the earliest identification date and the latest escrow closing date of your last replacement.   just make sure after your 1st replacement, subsequent identification date must still be within the 45 d after sale of relinquished and last escrow close must be within the 180d.   if you don't meet that, then you have multiple 1031 and need form 8824 for each.  hope that is clear.  check with you 1031 exchanger, they will know if you have more than 1 1031 or just 1, they know about those days requirement.  also check with your accountant too.  my suggestion is just a way to still use form 8824 via TT .

[Lily Yu]

Randy,

Your instructions are very helpful.  I am working on my 2021 tax return involving 8824 and having a couple questions.  Would you or any other experts please give me some advice.  I really appreciate your time and help.

My situation: 

• Had a couple of 1031 exchanges in 2021 via IPX as the QI.  
• An exchange included three relinquished properties and three replacement properties all closed in 2021, compliant with the 45 day, 180 day, and other 1031 rules.  IPX distributed a lump sum funds from the sales of three relinquished properties, subtracted IPX fees, then distributed the remaining funds to the settlement companies for the replacement properties.  We used a subset of the fund to cash-purchase a replacement property, remaining funds were divided to close the other two replacement properties.
• Another exchange involved one relinquished property closed in November 2021, and a replacement property in January 2022.  The exchange was compliant with the 45 day and 180 day rules. 

Questions:

1.   Is it correct that we'll file a 8824 for each pair of the relinquished property and replacement property?
2.   In the situation where the replacement property was closed in Jan 2022, is it correct to file 8824 with 2021 and the replacement property itself will appear in 2022 tax return. 

Additional questions for each 8824:

3.  Adjusted basis of like-kin property given up:  Should I include the "to-be-depreciated amount for 2021, the year the relinquished property was exchanged out " for the relinquished property when calculating the Adjusted basis of like-kin property given up (original cost basis / purchase price - depreciation taken).

4.  Fair Market Value of Property given up and Exchange Expenses: 

*    The HUD for the relinquished property sale shows a "Sale Price of Property" and a "Net proceeds to IPX1031" which is smaller than the Sale Price of Property (subtracted costs etc). 

*    IPX (QI) charges a fee and they subtract that from the Net proceeds to IPX1031.  IPX then distributes the remaining funds toward purchasing the settlement property.

>>  Should I use the Net proceeds to IPX1031 as the Fair Market Value of Property given up, with the Exchange Expense would just be the IPX fee?  or

>> Should I use the "Sale Price of Property" as the Fair Market Value of Property given up, with the Exchange Expense = sum of the below qualifying expenses:

* Real estate broker’s commissions, finder or referral fees
* Owner’s title insurance premiums
* Closing agent fees (title, escrow or attorney closing fees)
* Attorney or tax advisor fees related to the sale or the purchase of the property
* Recording and filing fees, documentary or transfer tax fees
* IPX Fees

3.    Exchange Expenses: 

Would this include the qualifying expenses for selling the relinquished property only plus the QI fee? or this also include the qualifying expenses for purchasing the replacement property?

Thank you again for your time and expert assistance.

Lily 

[randoodle]

@Lily Yu ,

Wow!  That's way beyond my expertise.  Hopefully someone else can help you or you may need to consult a CPA.

Hope you figure it out.

Blessings.

  Randy

[lori58sf]

CPA or any with 1031 knowledge need to say: please consult with your CPA and any CPA likely will require a thorough understanding of your tax situation plus doing your 2021 tax return in order to answer your questions.  I think reason is not because of making money but liability.   

This forum is an informal one, and know to be certain you either take a risk or ask a CPA to review your return.  So what I am about to answer, is only based on your question and no knowledge of your return.  so please do know the risk.  

1.  file two 8824. you mentioned you met all 1031 rules, make sure they are all like-kind.  if any are not , you can provide multiple groups in each 8824.  per your description. seem all -like-kind, then no groupings. 

2. file both 8824 for 2021 tax return; tax return due date is always on April 15 of following yr.

3.  adjusted basis:  only include all executed depreciation.  so for 2021, you have partial one to use.  

4.  FMV s/b asking price.   but you can deduct the non recurring expenses when you calculate if there is any boot $ or that expense can count toward your adjusted basis.

5.  exchanger fees of QI is a non recurring expense.  so apply it to adjusted basis.

have you done 1031 before in prior returns?  if not, probably worth the cost to pay a CPA to do your return.  if you prefer to do your return, then probably cost effective to ask a CPA to review your return.   

good luck

[Lily Yu]

Thank you lori58sf  for your answer to each item.  They are very helpful.   

Being the first time filing a 1031 exchange, after comparing 8824 examples online, I think the "Line 24 Deferred gain or (loss)" and "Line 25 Basis of like-kind property received" looks correct for the two simpler exchanges (one 8824 form for each as they involve a relinquished and a replacement house). Thanks lori58sf  again for your time and expert advices.

The high level advice you provided for the exchange that involved three relinquished properties and three replacement properties makes perfect sense.  However I would like to verify a couple of follow up questions.  I appreciate any assistance from you or any other experts.

Situation:

One of the relinquished properties is a farm.  Half of the farm has always been cash-rented and other half always CRP (USDA Commodity Credit Corporation: agricultural payments 1099-G).  The other two relinquished properties are rental houses.  All the three relinquished properties were closed early September 2021.

All the three replacement properties are rental houses, and were all closed on September 23, 2021.

The combined cost of the three replacement properties are ">" (but "not >= 200% of" the combined sales price from the three relinquished properties.

Questions:

1. Based on the readings I believe the farm is considered a like-kind property just like a rental house.  I don't see the farm needs a different group for from the rental houses.  Would anyone please advise?
2. It sounds like I need just one summary 8824 for the exchange that involved three pairs of relinquished and replacement properties.  I need to separate the 8824-calculation for each pair of relinquished property /replacement property in my own worksheet.  I'll need to file 2021 tax return including the worksheet.  I use TurboTax Home & Business and always eFiled.  Would someone please help me understand my options:
   1. Desired option: Does Turbo Tax have any worksheet template within the software that I can use to present the 8824-calculation for each pair  of relinquished property and replacement property? or
   2. Desired option if viable: Turbo Tax can enable someone to "add/insert" a file (e.g., xxxx.xlsx) in the eFiling process?  or
   3. Least desired option: Do a paper file including all Turbo Tax files and my own excel file.    

 Thank you all again in advance for your time and helping hands!

Lily 

[RobertB4444]

You should be using the desktop version and not the online version for this.  Here is some more information to help with the data entry.

You could try to attach worksheets in TurboTax but it seems unlikely that they would carry through as desired.  I am afraid that you'll have to print and paper file the  return.

Your farm is a rental property.  Rental property for rental property is a like kind exchange.  Rental property for non-rental property is not.  Be careful how you enter it.

[lori58sf]

hey

farm and resident rental are viewed differently.  so you actually have a Multi-asset exchanges.   you need to create groups if some are like-kind rental and some are like-kind farm properties.

[Lily Yu]

Thank you both for your advice.

lori58sf , one of the relinquished property is a rental farm (the other two relinquished properties are rental houses).  All three replacement properties are rental houses.  Therefore the relinquished farm would be exchanged with a replacement rental house.  

Do I need different groups (multi-asset exchange)?  If so how do I create a group in Turbo Tax Home & Business version?

Thank you,

Lily