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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10164
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I sold my apartment building for $2.3 million and netted

Customer Question

I sold my apartment building for $2.3 million and netted $2.1 after closing cost. I took 600k and purchased a new condo which I have rented out and qualified for a 1031 exchange. I had a intermediary handle the transaction within the required time frame. There was no liability outstanding on the building. The asset was part of a S corporation located in NYC.I have additional income of approximated 20k from the s corp. I have made estimated tax payments to
the NYC general corporation tax and personal estimated tax payments both federal and state based on a gain of $1,552,000The sale of the apartment building took place on February 2015 and the like kind exchange took place within the required time frame (July 2015) From the proceeds of the sale $600k was sent to
the intermediary to purchase the new property.I am trying to record the transactions on my books and have done the following which I feel is incorrect When I run my tax software it tell me that my gain is different than what I have booked stating that it is
the amount of cash I received $1,552,000 or boot.Cash received on sale less the amount held by intermediary:
cash 1,552,000
accum dep 51,000
building 171,000
land 5,000
gain on sale???? 1,427,000The new section 1031 asset
Condo 600,000
Paid in Cap ?? 600,000this is how I handled the monies that were transferred directly from the firm handling the 1031 which I never saw or received.How do I reconcile the difference in my retain earnings account from tax to books or what am I missing??? What am I missing or not seeing????????????
Submitted: 9 months ago.
Category: Tax
Expert:  Lane replied 9 months ago.

This might help.

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When trying to reconcile the Accumulated Adjustments Account (AAA) to retained earnings, keep in mind that the Schedule L on the 1120S is the balance sheet of the corporation for book purposes and the AAA account is a tax schedule only. There are adjustments that must be made to book income for tax purposes. The M-1 adjustments are either permanent or temporary, dependent upon tax law.

AAA Versus Retained Earnings Reconciliation

For example:

When we combine Sch M-2, Columns (a) and (b) we note the difference between the AAA and retained earnings is $3,900.

Retained Earnings (Per Sch L)335,000

Schedule M-2 Balance331,100

Sch M-2 / Sch L Difference3,900

Bonus Depreciation (Sch M-1, Line 6a)5,400

§179 Expense (Sch M-1, Line 6a)23,500

Bad Debt Allowance Adjustment (Sch M-1, Line 2)-25,000

Total3,900

Unreconciled Difference0

Because the M-1 adjustments made for book to tax reconciliation are temporary, in this situation the retained earnings and the AAA account would balance in future years barring any other adjustments. There are situations, however, when the M-1 adjustments would be permanent and thus the retained earnings and accumulated adjustments accounts would never reconcile.

Expert:  Lane replied 9 months ago.

Hi,

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I’m just checking back in to see how things are going.

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Let me know…

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Thanks

Lane

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