1031 exchange transaction in LaCerte

[Mduran]

Hello, has anyone had a 1031 exchange transaction where the property is sold in one year and replacement property is purchased following year?  Also, at closing they had construction funds paid out.  Here is the scenerio:

Relinquished property cost basis is 1,473,155.27 and sold for 2,600,000 on 9/9/22 this property had a mortgage the seller turned around and paid down the mortgage with 1,400,000 of sales proceeds. Closing cost of 142,967.63 were also paid with the proceeds.  The 1031 exchange company held 1,057,032.37 until replacement property was purchased in 2/22/23.  Replacement property sales price is  425,000. Along with the purchase there were disbursements in the amount of 440,582 for improvement on this new replacement property.  Closing cost of 959.  At closing there were 190,491.37 paid back in cash to the seller in this case now the buyer.

What i am trying to figure out is how would i recognize the construction disbursement for the improvements for the property would i include this with the new replacement cost of the property.  My calculations show that total boot would be 1,590,491.37 (1,400,000+190,491.37).  I have entered this information into lacerte but I am not sure if i have done this correctly.

Thank you,

Maria Duran

[joshuabarksatlcs]

RE: how would i recognize the construction disbursement for the improvements for the property

Who paid for the construction disbursement?  (I interpreted it was for the improvements of the replacement (purchased) property.)  

When was the improvements done?    

"The transfer of relinquished property is not within the provisions of Section 1031(a) if the relinquished property is transferred in exchange for services. Thus any additional production occurring with respect to the replacement property after the property is received by the taxpayer will not be treated as the receipt of property of a like kind." (Reg § 1.1031(k)-1(e)(4)).

The above exchange regulations became effective in 1991. 

In 2001, the IRS issued Rev. Proc. 2000-37, which in part established the idea of a Qualified Exchange Accommodation Titleholder (QEAT), an entity that can be used to work around the issue of improvements not being like-kind to the taxpayer's old property.  

Did your client use a QEAT?  If not, how was the improvement paid?  How much?

The sale transaction has to be reported in 2022 with F8824.  The replacement was in 2023.  What were you getting at king when you asked  "has anyone had a 1031 exchange transaction where the property is sold in one year and replacement property is purchased following year? 

Isn't it quite common?  If a property was relinquished in the last quarter (and at times in the third quarter), the replacement would likely fall in the next year, so long as the 180-day rule is satisfied.