Sale of a property for a Like kind exchange (8824 generated properly but how to enter the sale completely)

Forum|Forum|3 years ago
January 30, 2023
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I went through all the forums on TT and could not find answer thats why posting my question.

I sold rental property A on Feb 1 and did a 1031 exchange with rental property B using an intermediary. Property A was rental for 8 years and was vacant for Jan (waiting to be sold). I was able to find how to enter like kind exchange(search and jump to like kind) and process generated 8824 correctly. The numbers look correct, it calculated new cost basis for property B correctly. In the last page it asked if I want to link it to a property and I linked it to property A.

Ques 1) Property A has been reported as a rental property on my return for last 8 years, so it already exists on my return.

How do I report the sale of property A so that TT understands it is for this exchange.

Following "Sale Of Property/Depreciation" -> "Tell us more about this rental asset" I selected "The item was sold, retired, stolen.....or given away" -> Confirm your prior depreciation -> "Special Handling required" does not include any option for like kind so clicked "No". Then it navigates to "Sale Information" with asset and land separately, and if I enter the numbers TT calculates tax on my gain which is incorrect.

What should I do for property A for TT to understand that the gain should not be taxed.

Ques 2) Property A was vacant for Jan 2022 before it was sold in Feb. I understand no deduction or depreciation can be taken for property A as a rental property for that time.

In "Property profile" -> I checked "I sold or disposed of this property in 2022" -> For "Was this property rented for All of 2022" I selected "No, this property was not rented all year". But if I select"checkbox "I did not rent..." then TT asks me to delete the property. Should I instead just add number of days as 0? In one of the older threads someone mentioned enter number of days rented as 1 so that a schedule E is generated, not sure if its still correct for 2022.

Ques 3) property A has unallowed passive losses from last year. How to transfer passive losses and remaining depreciation from property A to property B, does it have to be done manually when adding property B as a new rental property?

Thank you for any help!!

TurboTax Home & Biz Windows

Best answer by Anonymous_

Starting with Question 3, you most likely have to enter the passive loss carryover manually (see screenshot).

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Anonymous_Answer

Employee

Starting with Question 3, you most likely have to enter the passive loss carryover manually (see screenshot).

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Anonymous_

Employee

With respect to Questions 1 and 2, you need to make a decision as to whether you want to elect out of the like-kind exchange rule.

See https://kb.drakesoftware.com/Site/Browse/10160/8824-LikeKind-Exchange (scroll down since these are instructions for professional tax software).

If you do not want to continue depreciating the old asset, then you would have to indicate that you removed the old asset for personal use in the program (the linking in the program does not work very well). Doing so will stop depreciation of the old property and will remove it from the program when you transfer your 2022 return into your 2023 return next year.

Note that simply because the property was vacant does not necessarily mean it was unavailable for rental use. Therefore, if the property was vacant in January, but still available for rental, then you should so indicate.

nirbheeAuthor

Thank you.

- Understanding the information you guided me for exchange rules, I think I would want to elect-out of like kind exchange rule, it seems simpler. I selected "Yes" for the screenshot below, it does not take me to entering sale information and doesn't show any taxable gain. Though, I don't understand why for exchange as "personal use" should be selected (Property was always a rental and sold, never used as a personal residence). Maybe "personal use" is a broader term than I understand? I don't see any other way to specify disposal of property as personal use other than this screen.

I should have clarified more about the vacant property. Property was vacant because it was listed for sale and was in contract for sale. Reading through earlier posts seemed like that time should be counted as non-rental, but could be incorrect.

What should I indicate in the screenshot below.

If I click the checkbox "I did not rent....." then TT wants me to delete the property. If I enter "Days rented" as 0 or >0 days then a schedule E is generated with deductible rental loss which includes depreciation, tax, mortgage interest etc for one month in 2022 (property sold on 1stFeb).

I don't know what is the correct way-> to take deduction for that month (when property was listed for sale before the date of sale), or not to take the deduction.

I am ok either way, just want to avoid any issues with IRS.

If I should not take deductions, then I don't know how to accomplish that (Given that TT calculated depreciation for one month and everything else automatically after I went through marking it as taken away for "personal use").

Options seem to either delete the property or apply the deductions through Schedule E.

Thanks!

Anonymous_

Employee

This is not easy, frankly, and TurboTax does not make it any less so.

The bottom line is you need to convert the relinquished property to personal use for no purpose other than to stop the program from calculating depreciation deductions throughout the rest of the tax year.

If you're electing out, you want the depreciation to stop on the date it was taken out of service (which should be the same date as the replacement property was placed in service).