Schedule E - Vacation Rental Properties

[semjeito]

I had a vacation rental property sold in Aug 2024 and used a 1031 Exchange to purchase a different property in Sep 2024. The SAME management company managed BOTH units during the year. Asa such they only sent me ONE 1099-MISC form with totals that include BOTH properties. What should I do ??? Try to break out the 1099-MISC amounts ands "fake" Turbotax into thinking I have two separate 1099-MISC statements, one for each property ??? Thanks.

[DianeW777]

Yes, you can break out the 1099-MISC amounts into two. The choices are enter two 1099-MISCs or simply enter the correct income in the correct rental properties an keep the form in your file.  The IRS knows the income is for rents and so likely no questions later on.

Section 1031 Like Kind Exchange Tax Information:

Depreciation Rules:

The basic concept of a 1031 exchange is that the basis of your Old Property rolls over to your New Property. In other words, if you sold your Old Property for $100,000, and bought your New Property for the same, your basis on the New Property would be the same. It makes sense then that your depreciation schedule would be exactly the same, and does not change! In other words, you continue your depreciation calculations as if you still own the Old Property (your acquisition date, cost, previous depreciation taken, and remaining un-depreciated basis remain the same).

Buy Up:

If you 'buy up' in your exchange (your New Property cost more than you sold your Old Property), the answer is easy – you treat the buy up 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 construction, for example, of a garage added to an existing house – the cost is the amount of the buy-up; the date you start depreciating it is the date you purchased the new property; and the depreciation method you use is the method most appropriate for that type of property in the year you bought the New Property (regardless of the method you used for the original house). If you think of it this way, then it's easy, even if your property is a large office building or a more complex purchase.

• Where do you enter a like-kind  or Section 1031 exchange?
• IRS Fact Sheet for Section 1031 Exchange
• IRS Instructions for Form 8824

Boot: 

Any property or money you might have received that is unlike property in the exchange would be immediately subject to capital gains tax. 

[DianeW777]

Try the detailed steps listed in your other question and placed here for your convenience. This should provide the correct resolution. Make sure to select 'Special Handling' for the assets given up assuming you are creating a new asset for the new property. Then follow the steps to enter your new asset.

Allocating the income and expense is the appropriate action and accurate entries from the one 1099-MISC you received.

When you have your TurboTax return open you can use the following steps to update the original assets for the exchange.

1. First use the Search (upper right) > Type rentals > Press enter > Click on the Jump to... link
2. Or Wages & Income > Rental Properties and Royalties > Update > Continue to Rental and Royalty Summary > Edit the property
3. Scroll to Assets/Depreciation  > Click Update > Select 'Edit' next to each asset
4. Edit beside each asset > Continue to the Tell Us About This Rental Asset
5. Select the checkbox beside 'This item was sold, retired, .... traded in ....etc. > enter the date it was traded (sold/retired)
   1. You can choose not to select this and just change the name of the assets given up in the trade to identify them with the new property. The depreciation for the year will not change on these assets.
6. Answer the question about whether it was 100% business > Leave the original date it was placed in service (may be purchase date or later depending on your circumstances)
7. Continue to the screen 'Confirm Your Prior Depreciation'  
   • The amount displayed is only for prior years and does not include the current year. 
   • Continue until you see the current year amount displayed and make a note to add the two amounts together for the Section 1031 like kind exchange.
   • This completes the asset portion of the trade.
8. Answer 'Yes' to Special Handling.

Next you will complete the like kind exchange, Form 8824 (Section 1031 exchange):

1. Use the Search (upper right) > Type like kind > Press enter > Click on the Jump to... link
2. Select the checkbox beside 'Any additional like-kind exchanges (section 1031)' > Continue
3. Complete the information for the 'Real estate given up'  and 'Like-Kind Property Given Up' > Continue
4. Name the event > Continue > Complete the information for the 'Like-kind property received'
5. If you did not give unlike property in the exchange click 'No' and  continue past these screens, if 'Yes' answer the questions.
6. Enter any exchange expenses (sales expenses) > Continue to see your deferred gain.

If you marked the original assets as sold, traded, etc (see 6. above) then go back to your rental activity and then enter new assets with the exact same information as the property given up with a new name, but with the same date placed in service as the old property, for all assets that are part of the exchange.

Depreciation stays the same on the received property and a new asset is created for any buy up in the exchange.

[jbnielsen]

The one should give all necessary information.  You are reporting a sale and purchase, which are treated as one transaction under 1031.  If you need information not provided on the form, contact the management company.

[semjeito]

Thanks you again for providing additional input steps.

I must confess, my level of frustration with the 2024 Turbotax Premier for Windows software package has reached an absolute fever pitch. I have tried to follow all of the detailed instructions you have kindly provided including Form 8824 which records a valid like kind exchange under Sec. 1031 rules. No matter what I do the program continues to show in Form 1040 that I must pay capital gains tax (it is not being deferred due to the like kind exchange) on the sale of the first property and on top of that is adding a severe penalty for under withholding during the year.

Because of other business losses (not related to Schedule E rental properties) and very low W2 income reported along with a bit of capital gains / dividends and interest income, the impact of what Turbotax is erroneously showing me right now is a swing of about $83,000 in my tax liability for 2024 !!! If the program were treating the like kind exchange properly I should be receiving back a large percentage of the $9,800 in the federal taxes withheld  during 2024. Instead Turbotax has decided I should pay the Feds a little over $73,000 !!! UNREAL !!!

What makes this even more frustrating is that I have been a loyal user of the PC based version of Turbotax since the mid-1980's when it was still a DOS based program. How many folks can say that ??? Never ever had an issue with any of the versions I have purchased and used each year over the last 40 years. 2024 is unfortunately a very different story so far.

Since there is absolutely NO phone number I can find on the website to call at Intuit about support the only way I can think to try to resolve this situation before  April 15th is to provide an expert at Intuit / Turbotax access to my 2024 Turbotax file to see what I'm doing wrong or to verify that the program is indeed flawed. 

Please let me know ASAP, this is a potentially very costly problem. Without resolution ASAP I will be forced to file an extension so the Gov't gets to keep my over withheld funds even longer and I would either have to prepare everything by hand or pay a CPA to do it while getting zero use out of Turbotax. VERY FRUSTRATING......Thanks in advance for your help.

[DianeW777]

I understand the challenges. The following links will give your contact information for TurboTax. 

• What's the TurboTax phone number?
• How do I contact TurboTax?
• How do I file an IRS tax extension?

[semjeito]

Thanks for the links. 

I essentially started again from scratch over the weekend and it seemed to work the 2nd time around. The program did properly recognize the like kind exchange and I'm now getting the proper refund instead of having to pay a large amount in capital gains taxes.

I believe my mistake was to tell Turbotax I was selling the 1st property when inputting data under Schedule E Rentals, Royalties, etc.  I noticed 2nd time around there was very small print on the screen indicating I should not show a sale in the Rents., Royalties section. I instead reported the like kind exchange under Sale of a Business as a Like Kind Exchange and it worked great.