Exchange of like home through sale

[fesemagu]

My Client sold the house that he inherited form his parents and use the proceeds to purchase two homes. How should I report this like exchange. Which forms should I use? --8824 or ?

FYI: The house was purchase in 1979 for $91,000.00 and sold for $1,180,000.00 in January 2023.

[taxiowa]

I would use form ? because you can not do a like kind exchange of a personal residence.  Or was it used as rental after inheritance.  And when was it inherited, because step up might eliminate some of your concerns.

[fesemagu]

It was inherited in 2021, when taxpayer parents passed away. Tax payer and his sister lived there after parents passed away..

[taxiowa]

Then it was a personal residence and you can not do a like kind exchange.  So you have a sale of the inherited house and purchase of two new homes.

But as I said you need to ascertain FMV basis on death because that is what you would most likely use as your cost in the sale.

[Just-Lisa-Now-]

Doesnt sound like a 1031 exchange, that cant be done with a primary residence....did they bring you paperwork from the 1031 Intermediary company that held the money from the sale and disbursed that money for the purchase of the other homes?

If the money from the sale went directly to your client, this is NOT an exchange.

[fesemagu]

The money went to a trust fund, then payment for both houses was made from the trust fund.

[IRonMaN]

Even if the property qualified for a 1031 exchange, that hope died once they touched the cash. 

[BobKamman]

I think what he meant was that the funds passed through a 1031 facilitator, who neglected to tell him that personal-use property does not qualify.  

[fesemagu]

Yes , I got my answer. I used the FMV at the date of inheritance. 

[qbteachmt]

"the funds passed through a 1031 facilitator"

That would be reportable as a failed exchange, then.

"It was inherited in 2021, when taxpayer parents passed away. Tax payer and his sister lived there after parents passed away.."

"My Client sold the house that he inherited form his parents and use the proceeds to purchase two homes."

This changed in 1997. Individuals who sold their home at a profit could roll over the proceeds of the sale into the purchase of another home to avoid paying any capital gains taxes (deferred). In addition, the old law permitted individuals over age 55 to claim a once-in-a-lifetime exclusion of $125,000 in capital gains resulting from the sale of their home.