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I have a client that participated in a like-kind exchange. They used an intermediary party. The purchased property ($240K) was less than the FMV of the relinquished property ($550K). The basis on the relinquished property ($165K) would reduce the taxable gain. They only received the funds for the difference between the gain ($550K-$165K) - $240K. The cash received was $145K. Please coach me on how to enter this in ProSeries. The 8824 wants to treat the $165K basis plus cash received $145K as boot. Please coach me on how to enter the partial 1031 exchange. Thank you!
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@Mel7777 wrote:They only received the funds for the difference between the gain ($550K-$165K) - $240K. The cash received was $145K.
No, the client received $310k ($550 sold, $240 bought). Some of that may have been forwarded to the mortgage company to pay off the mortgage, but the client received $310.
The program is correct and that is all taxable. There was no point in the client doing the 1031 exchange, and wasting money paying the third-party intermediary.
1031 Exchanges are generally for 'upgrading' to a higher cost property. Going down results in some or all of it being taxable.
Sorry for the bad news.
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@TaxGuyBill wrote:No, the client received $310k ($550 sold, $240 bought). Some of that may have been forwarded to the mortgage company to pay off the mortgage, but the client received $310.
The program is correct and that is all taxable. There was no point in the client doing the 1031 exchange, and wasting money paying the third-party intermediary.
In this case they're still deferring $75K of gain ($240 - $165) so there might have been some point in doing a 1031 (but I'd guess that the tax savings were eaten up by the fees!)
Rick
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I'll have to look through the form again, but I have stuck in my head that the extra cash cancels that out.
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@TaxGuyBill wrote:I'll have to look through the form again, but I have stuck in my head that the extra cash cancels that out.
In this case the gain is $550 - $165 = $385. Boot received was only $310 so that's how much gain gets recognized. The right answer is probably something completely different but I'm ignoring facts not in evidence such as closing costs and prior depreciation.
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That makes sense. But the OP is still stuck with figuring out how to enter it in ProSeries.