1031 exchange

[MikeB201]

In 2023, I did my first 1031 exchange, using a Qualified Intermediary. All was by the book and now I'm working on my taxes. I can see how to enter the 1031 information such that TurboTax completes form 8824 properly to defer my capital gains. However, If I enter the date that I sold my rental property when I'm working on that particular property, it also generates form 4797 and gives me the capital gain back. How do I keep that from happening?

[Anonymous_]

How are you entering the transaction?

You should be entering the transaction in the Sale of Business Property section of the program.

[Anonymous_]

[MikeB201]

Yes, I entered info there which generated the form 8824. But if I enter information in the "your property assets" area, and proceed to "disposition information" and enter the date of the sale there, it then also creates form 4794 and gives the capital gain back.

[AmyC]

It was not a sale of property and the rental section does not ask about an exchange. When going through the general property information, Do Any of These Situations Apply? Sold is the wrong answer for a 1031 exchange as the blue Learn More button will show. The easiest solution is to mark that you converted the property to personal use. Then you can use the correct number of days as a rental for depreciation. The correct amount of depreciation must be entered as part of the 8824. The goal is for the program to know you are no longer renting and did not sell the property.

Fair warning for the new rental:

There are two ways to handle depreciation after a 1031. Turbo Tax only handles one method, the single schedule depreciation. It is simple, you take your new adjusted basis, begin depreciation fresh on the new property based on the type of property. The new building could have different depreciation schedules.

[MikeB201]

OK, thanks for the advice! Continuing on...When the program asks if I want to report this transaction, do I assign it to a rental (schedule E) and then assign it to the relinquished property? 

[RobertB4444]

Yes.

@MikeB201 

[MikeB201]

I'm still having trouble getting the 2023 depreciation correct for my relinquished property. The response suggests saying I converted the property to personal use. It seems I shouldn't have to do something like that. Is there a way to manually adjust the 2023 depreciation lower than a full year's worth?

[RobertB4444]

Entering the date of sale for the property should automatically adjust the depreciation to the portion of the year that you held the property.  

@MikeB201 

[MikeB201]

Since this is a 1031, I can't enter a sale date because then it gives me a big capital gain instead of a deferral. 

[KrisD15]

Report TO THE PROGRAM  that the rental was converted to personal use on the date it was involved in the 1031 Exchange.

Claiming that the rental was converted is NOT anything that is actually reported on the return, it simply allows the program to report the 1031 exchange and depreciation properly. 

The program does not supply an alternative method. 

You also need to keep track of the deferred gain for future reporting.