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R. Klein, EA
R. Klein, EA, Enrolled Agent
Category: Tax
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Did a 1031 exchange in 2005 with a gain. sold the property

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Did a 1031 exchange in 2005 with a gain did file a 8824 reporting the gain. sold the property in 2011 at a loss. ( Did purchase a new property in 2011, but not as part of the 1031.) Is a 8824 required for 2011?   We want to take the loss on the sale in 2011 against the deferred gain from 2005.  How exactly do i report this? On Sch D? but where do I list this deferred gain from 2005 to be able to take the current loss? This is an investment property.
Submitted: 4 years ago.
Category: Tax
Expert:  R. Klein, EA replied 4 years ago.

Randalltax :

You only file 8824 if you had an exchange during the year. Selling the property outright is not an exchange.

Randalltax :

You don't take a loss against a deferred gain on an exchange, at least not the way you described it.

Randalltax :

You simply subtract the basis from the sales price and add back the depreciation recapture to determine the gain or loss. The basis has carried over from the first property.

Randalltax :

Example: Buy house-1 for $100K cash. It depreciates $20K and you exchange for house-2 that costs $200K. When you exchange, House-1 is worth $150K, so you add boot of $50K. You hold House-2 until it is sold for $175K.

Randalltax :

While holding House-2 it depreciated $15K

Randalltax :

So your basis is (100-20) + 50 - 15 = 115K. Since you sold for 175, your gain is 60K. Your depreciation is recaptured of 20+15=25. Total gain = 95K

Randalltax :

I don't have your numbers, but there is only one sale (in 2011) and one basis figure and one figure for the total depreciation.

Customer: Thanks for your response, but it did not answer my question. This is an investment piece of land, capital asset. There has been no depreciation taken. Do not have the file in front of me, but deferred gain in 2005 was 290k which was exchanged for the property which was sold in 2011 at a loss of aprox 230k. So we have a net LT gain of 60k. Where is this reported? My understanding is on schedule D, if this is correct, how on the schedule D?
Randalltax :

Same scenario, take away the depreciation.

Randalltax :

It is a single entry that will go to Schedule D, but must flow through Form 8949.

Randalltax :

How much did you pay for original investment? How much boot (if any) on exchange in 2005 or straight up exchange? What was the selling price?

Customer:

Thank you for your quick response. I've attached snapshot of original 8824 from 2005. They say a pic is worth a thousand words.

Customer:

Hit the enter key too quick. Original property was acquired 052504, sold 100405 and new like property identified 091505 property, received 120905.

Customer:

If entering on Sch D, Would just list in part II Iine 9? For column "F" would I list the basis as the difference between the two properties? This is where I am a bit confused. Does it need to be noted the original gain, offset by this loss?

Customer:

As far as 8949 it is coming over as "1031 investment property" Acc 120905, sold 062111, sales price 650K cost $585744. The end result is correct, but not sure if the presentation on correct.

Expert:  R. Klein, EA replied 4 years ago.

Form 8949, yes, should simply show the sale price of $650K minus basis of 500K+ expenses. That's it. If you are using tax software, most don't let you directly enter anything in Sched D for a reason.

 

Officially, you don't recognize the gain on an exchange, you really just push the old basis into the new property.

 

 

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