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1031 exchange 2 for 1, Ive done a 1 for 4 before and it went really smooth...struggling with this one.

Just-Lisa-Now-
Level 15
Level 15

Client has 2 rentals, cost + all imp 230K with about 67k in depreciation.

I cant seem to link both properties to the same 8824, so I'm entering it manually.

Selling for 300K (170K for one, 130K for the other), but after paying off the mortgages and paying the selling expenses, ends up with 140K cash in hand.

Wants to put $140K into a new rental property, but has an additional 50K he can add to it as well for a total of 190K to invest in a new rental.  (He can not qualify for another loan to reinvest the entire sales price).

When I plug these figures into the 8824, doesn't seem to make any difference if he reinvests the 140K or the 190K....I must be missing an entry or a piece of the puzzle somewhere on the 8824.

Any words of wisdom?

Ive been trying to follow the instructions here https://accountants-community.intuit.com/articles/1608733-1040-completing-a-like-kind-exchange-of-bu... but its for 1 property, not multiples.


♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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TaxGuyBill
Level 15

First, this hasn't actually happened yet, has it?  You said "ends up with 140K cash in hand".  If the taxpayer actually has it "in hand", that pretty much voids the 1031 exchange.


You are correct, ProSeries does not do multiple exchanges, so you need to manually do it.

https://www.irs.gov/instructions/i8824#idm140099190985936


The 8824 is to defer the gain and put it into the new property.  If he is deferring the entire gain (which seems to be the case), it doesn't matter if he is investing an additional $50,000 or not.  The entire gain is deferred into the new property.

So Line 16 (from Line A of the worksheet) shows the $190,000 FMV of the new property, which partially includes that $50,000.  If he did not invest the extra $50,000, Line 16 (from Line A of the worksheet) would only show $140,000 for a lower priced new rental property.


Does that help at all?  These things are confusing, so if you need further help, let us know.  Maybe post screen shots of your 8824 (and the worksheet) if you aren't sure if things are showing up correctly.



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TaxGuyBill
Level 15

First, this hasn't actually happened yet, has it?  You said "ends up with 140K cash in hand".  If the taxpayer actually has it "in hand", that pretty much voids the 1031 exchange.


You are correct, ProSeries does not do multiple exchanges, so you need to manually do it.

https://www.irs.gov/instructions/i8824#idm140099190985936


The 8824 is to defer the gain and put it into the new property.  If he is deferring the entire gain (which seems to be the case), it doesn't matter if he is investing an additional $50,000 or not.  The entire gain is deferred into the new property.

So Line 16 (from Line A of the worksheet) shows the $190,000 FMV of the new property, which partially includes that $50,000.  If he did not invest the extra $50,000, Line 16 (from Line A of the worksheet) would only show $140,000 for a lower priced new rental property.


Does that help at all?  These things are confusing, so if you need further help, let us know.  Maybe post screen shots of your 8824 (and the worksheet) if you aren't sure if things are showing up correctly.



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Just-Lisa-Now-
Level 15
Level 15
I need to contact him again, he's hard to reach, no cell phone, no email, lots of telephone tag.

The 1 for 4 exchange I had a couple years ago was a prop bought in the 70's with no basis left the entire sale was gain so it all had to be reinvested, so I think I'm thinking about this wrong...he doesn't need to reinvest the whole 300K that he sold for?

He told me the money from both sales is in an escrow account, so its not actually in his hand, but its available to him, sorry.    He sold for 300K, after selling exp and the mortgage payoffs, hes only got 140K left to put into the new rental..Im assuming that's whats in the escrow account (I need to verify).

I forgot to save the file when I exited, so the 8824 is gone, but I think I needed to start over from scratch anyhow....I wont be back in the office until Monday, I'll try and dig back into it then.

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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TaxGuyBill
Level 15
My brain is foggy from just waking up from a nap, but if I am thinking correctly, only the amount of the GAIN needs to be reinvested to be tax-free.
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Just-Lisa-Now-
Level 15
Level 15
I had 2 grandkids and 2 dogs at the park this morning/afternoon, I need a nap!   

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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Just-Lisa-Now-
Level 15
Level 15
So if his cost was 230K and hes got 67K in depr that makes his basis 163K.   Sells for 300K that leaves 137K in gain minus the selling exp, so putting the 140K into the new property is more than enough.

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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Just-Lisa-Now-
Level 15
Level 15
But that 120K he paid off the mortgages with is considered "boot", right?

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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TaxGuyBill
Level 15
Good point.  My prior foggy-brained statement was wrong.  If he trades the old $300,000 property in exchange for the new $190,000 property, he would be receiving $110,000 of 'boot'.  Right?  So of the $137,000 gain, $110,000 would be taxable and the other $27,000 would be deferred into the new property.  Right?
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Just-Lisa-Now-
Level 15
Level 15
I think this makes better sense, thank you!   

He says he only has $140K left from the sale to reinvest in the replacement property, but can add another $50k of his own money (the math doesn't seem right on this, he should have more, I need to double check it again)

I feel like I have all the pieces and think I understand the mechanics....Ugh! why does my brain keep scrambling it all up!?!

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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RobinH
Level 2

can you help me with a 1031 exchange?

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abctax55
Level 15

"He can not qualify for another loan to reinvest the entire sales price."

Lisa...confirm that the purchase price of the replacement is at least as much as the net selling costs of the two properties sold? 

If so, the additional cash put in shouldn't impact the deferral of the gain.  And check your email, 'kay?

Former Chump..oops..AllStar...I used to be a people person, then people ruined it


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abctax55
Level 15

Lisa... if your client's replacement property(s) FMV isn't equal to or greater than the FMV of the property sold, some or all of the gain will be recognized.  I asked the question earlier in the thread but I'm still not sure that is the case in your situation.

Former Chump..oops..AllStar...I used to be a people person, then people ruined it


If a post answers your question, click on *Accept as solution* for future searches
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Just-Lisa-Now-
Level 15
Level 15
Its NOT equal to or more than the FMV of the properties sold, there will be gain...this is why I'm having trouble grasping the situation.

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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