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

[AmyC]

You can go into the rental section and select the disposition/ depreciation option to enter the house as an asset. Just be sure to use your legal basis after the exchange., what you paid plus the deferred exchange.  You will still pull out the land value as a separate entry in the system. Since, as you know, land does not depreciate but must be part of buying and selling.

@KellyTaxesaremything 

[morbidz288]

I have the same issue. After completing "Sale of Business Property" entering all the 1031 info , I go and add the new rental. 

However when I try to add the house under "Add Expense or Asset" and selecting "I acquired this rental through a like-kind exchange" it tells me to "Gather like-kind information" and kicks me back to the summary for the new property.

How can i add the new property as an asset?

[HopeS]

As a result of s a result of the Tax Cuts and Jobs Act of 2017, like-kind exchange treatment only applies to real property (real estate).  Prior to the Act, personal property assets such as machinery, equipment, vehicles, arts and collectibles, and some types of intangible property also qualified for like-kind exchange treatment.

Below are the steps to follow if your like-kind exchange is for real property:

1. With your return open in TurboTax, search for like kind (2 words, no dash) and select the Jump to link at the top of your search results
2. This will take you to the question "Any Other Property Sales?".   Select Any additional like-kind exchanges(section 1031) and select Continue
3. On the next screen, select Yes and proceed through the interview questions. We'll fill out Form 8824 for you

If you accidentally generated a Form 8824 that you don't need, you can delete it by repeating steps 1 and 2 above. This takes you to the Like-Kind Exchanges summary screen where you can delete the unwanted form.

Form 1031

@morbidz288 

[morbidz288]

@HopeS 

This is not what i asked. I've completed the steps for the like-kind exchange.

I have problems when i create a new rental property(one received in the exchange), it's not letting me add depreciation

[RobertB4444]

The process of entering the like kind exchange in TurboTax should involve sale of the original property as well as creation of the new property and transfer of depreciation from the one to the other.  The entire process should be completed inside the like-kind exchange walk-through.  

If the depreciation isn't showing then you may have to check the entries for the original property as well as go through the like-kind setup again and make sure that the entries are all correct.

@morbidz288 

[corinneL]

Thanks for the great instructions.  

I am having a little problem calculating the basis of my new exchange property.  I have filled out the 8824 and it is calculating correctly.

I exchanged a rental property with a mortgage for a rental property without a mortgage.  The 8824, new basis of like kind property received (line 25) is $70k, and the deferred gain (line24) is $358,311.  We paid $110k in cash at the close of the new property.  Mortgage on the original exchange property $90k was paid off.  Boot on the sales price difference was $6k.  Original basis was $56k, including land.  Expenses of the sale ($21k).

Do I enter the new property in the asset section as follows?

1. enter an asset with the original basis of $56k (includes land) with original start date of old asset.

2. enter another asset with the expenses of the sale $15k ($21k less boot of $6k) starting the new asset start date.

3. we put $110k into purchasing the new asset.  Is that added to the new asset?

Thanks,

C

[corinneL]

I am having a little problem calculating the basis of my new exchange property.  I have filled out the 8824 and it is calculating correctly.

I exchanged a rental property with a mortgage for a rental property without a mortgage.  The 8824, new basis of like kind property received (line 25) is $70k, and the deferred gain (line24) is $358,311.  We paid $110k in cash at the close of the new property.  Mortgage on the original exchange property $90k was paid off.  Boot on the sales price difference was $6k.  Original basis was $56k, including land.  Expenses of the sale ($21k).

Do I enter the new property in the asset section as follows?

1. enter an asset with the original basis of $56k (includes land) with original start date of old asset.

2. enter another asset with the expenses of the sale $15k ($21k less boot of $6k) starting the new asset start date.

3. we put $110k into purchasing the new asset.  Is that added to the new asset?

Thanks,

C

[DianeW777]

Yes.  Continue the depreciation of the old property (now the new property) as though nothing as changed.

Yes. The buy up in your exchange (your New Property cost more than you sold your Old for), the answer is easy – you treat the additional cash part as you would a new addition to an existing property. In other words, you treat the amount of the buy-up the same as you would the cost of a capital improvement, placed in service in 2022.  

Be sure to keep all of your records of how you arrived at the information on your tax return until you no longer have a rental property that was exchanged for another (sold).

@corinneL 

[Ira2023]

Hi Randy,

saw your instruction for 1031 from a couple of years ago. Not sure if Turbotax changed its UI but i am still having trouble entering the information.

For instance; when entering the new property information, I do not get asked: "How did you acquire the property?"

Can you help?

[GeorgeM777]

Entering your Like-Kind Exchange begins in the Sale of Business Property section under Less Common Business Situations (TurboTax CD/download) or under Other Business Situations (TurboTax online).  Since 2020, the TurboTax screens may have changed.  Now, the first few screens will relate to the property you are giving up (exchanging) and then after the screen, Like-Kind Property Given Up, you should see screens relating to Like-kind property received. Thereafter, you will likely see screens relating to other property that you are giving up, if any, and screens relating to Section 1250 Property.  

After the above information has been entered, you should see the screen Your Like-Kind Exchange Results: Taxable Gain, Deferred Gain, and New Property Basis.  Are you seeing these screens? 

@Ira2023 

[randoodle]

@Ira2023 ,

I am amazed at how many folks are still referring to this post after so many years!  I haven't done an exchange with the latest version of TT; however, I would offer this suggestion.

The original prompt of "How did you acquire the property?" seemed only to send you back to determine the cost basis for the new property.  If you've already determined the basis from the first steps in my post (i.e., generated form 8824), then simply use that cost basis of the new property, rather than your actual purchase price.  This is essentially what an exchange does - it takes the gains from your old property and transfers them to the new property by lowering the cost basis of the new property.

See if that works.  You should always double-check the underlying forms that are eventually generated from the dialogs as well as the depreciation schedule for the new property.  Those forms are what is actually submitted with your taxes.

[Ira2023]

Thank you so much for getting back to me! Really appreciate it.

I followed your steps and I think it works. The system does not calculate any further realized gain and charges taxes. Not 100% that i have the cost basis correct. 

Another question: you mentioned to check the underlying forms: I would like to do that. How can I generate them in TT? 

Thanks for taking the time to respond.

Have a wonderful day!

[AmyC]

If you need help with the cost basis, see another post of mine here.

Once you see all the forms, you can look at the calculations. 

In desktop, switch to Forms Mode. 

For online, see How do I preview my TurboTax Online return before filing? Be sure to select all worksheets and forms.

[Ira2023]

Hello Amy, 

spending the last 3 hours trying to enter the information correctly with your instructions, but TT is continuing to calculate taxable gain on the like kind exchange. is there anywhere more instructions or examples end to end how to enter this correctly? I am getting so frustrated with the way TT has set this up. 

Thank you
Ira

[AmyC]

You should not have a gain showing from the like-kind exchange. In the rental section, you have to convert the house to personal use to avoid entering sales information and having a gain show.

If this is not the issue, please let us know what problem you are having on which forms.