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Question

Disposal of Rental Property Assumes a Sale and Generates Form 4797

Forum|Forum|2 years ago
January 25, 2024
1 reply
0 views

Hi,

I am trying to dispose of a rental property due to a 1031 exchange. When you check "yes" to Did you stop using this asset in 2023, a field is provided for the disposition date. When that is filled in, a sale is assumed and TT generates Form 4797 whether or not you select "Special Handling Required".

How do I dispose of this residential rental asset without generating a taxable sale?

TurboTax Home & Biz Windows

Employee

I don't know about 1031 exchanges. However, I do know a "possible" reason you're being asked for sales information after selecting "YES" on the Special Handling Required screen. (I'm not sure with a 1031 exchange, but I think you are correct to select YES on the Special Handling Required screen.)
Before you got to the assets section, towards the beginning of the SCH E section there's a screen in the Property Profile section where you need to select the option for "I sold or disposed of this property in 2023".

Once that's selected, then the section for assets should be titled "Sale of Property/Depreciation". Then when you click YES on the special handling screen, you shouldn't be prompted for sales information.

Employee

In the Less Common Business Situations section, look for the Sale of Business Property subsection and click the Update or Continue button.

On the next screen put a checkmark in the box:

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Employee

You also have a decision to make with respect to how you want to handle depreciation going forward.

See https://www.journalofaccountancy.com/issues/2008/nov/depreciatepropertyinlikekindexchangesconsistently.html

and

https://www.thetaxadviser.com/newsletters/2020/mar/deductions-like-kind-exchanges-cost-segregation.html