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1031 Exchange Refund of undistributed escrow

Level 1

I have a client who completed a 1031 Exchange at the end of 2018 (sold one property and identified and purchased a single replacement) .  In 2019, they received a small refund of funds that were not distributed in their 1031 Escrow account.  The total is approximately $1,600.  I am not sure how to record this on the 1065.

Can anyone point me in the right direction.

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14 Replies 14
Level 15

It sounds like boot to me, unless it's a return of cash your client put into the escrows.

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Level 1

I agree that it sounds like boot, I can't come up with anyway that it wouldn't be.  But I am not sure how to record this on the tax return.  The 1031 was completed on the 2018 Return.  Where would I put this on the 2019?

Thanks for the guidance.

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Level 15

If it IS boot, then it will be part of the recognized gain.

Former Chump..umm... AllStar.
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Level 1

So do I put this on a 4797 (the LKE was completed in 2018) to recognize the gain?  

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Level 15

Any RECOGNIZED gain will flow from F 8824, line 23 to the proper form (likely F 4797).

Former Chump..umm... AllStar.
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Level 1

That;s my confusion.  So I need to setup a new 8824 for a Like Kind Exchange for this year as well just to report this piece?  I guess that makes sense.

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Level 1

Wait,  

I think I may have found a way around this being taxable by going back to the original HUD1s.  The Taxpayer paid an initial $5,000 deposit on the property the new property.  Wouldn't this $1,600 being a non taxable event because the amount returned is less than what they put down out of pocket for the property.

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Level 13

"Wouldn't this $1,600 being a non taxable event"

 

That's what @abctax55 brought up earlier.

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Level 15

That's what @abctax55 brought up earlier.

Over a week ago, as a matter of fact....

Former Chump..umm... AllStar.
"the game of life is hard to play"

If a post answers your question, click on *Accept as solution* for future searches
Level 1

You are correct, but at the time, I wasn't digging too deeply into what I had done a year ago and had forgotten about the fact that they put money down before they paid the rest out of the Escrow.

Thank you for all of your help and patience with me.  

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Level 13

"Cash is the most common type of boot. Essentially, any cash that you receive during the 1031 exchange process is considered boot. You then need to pay capital gains taxes on that cash boot, which is exactly what you want to avoid in a 1031 exchange of real estate. Your exchange won’t necessarily fail if you receive cash boot, it just won’t be a completely tax-deferred exchange."

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Level 1

That i understand, and we are talking a highly immaterial amount, but I am not sure how to record this since we have crossed years.  The LKE (sale and new purchase) happened all in 2018, then several months later in 2019, they got this small refund from the escrow account. 

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Level 13

When you get money in exchange for property, that no longer is a Like Kind Exchange. Residual funds are outside of the Like Kind Exchange.

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Level 13

"and we are talking a highly immaterial amount"

You can send me that $1,600, and I can show how material it is.

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