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I'm looking for someone who has a good working knowledge of 1031 Tax Exchange, Form 8824. I have filled out the form, but have a question about closing expenses and Mortgage assumption.
Submitted: 9 years ago.Category: Tax
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3/1/2008
Tax Professional: RD, Certified Public Accountant (CPA) replied 9 years ago
RD
RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8,784
Experience: CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
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Customer reply replied 9 years ago
Step 1:
Line 15: I received some cash back from the exchange company. Does this go on line 15?

I assume the exchange company figured out the expenses for the exchange/closing correctly; And if I use the Cash back on line 15, I can figure out the rest. The work sheets in Turbo Tax are comfusing to me, but I'm concerned that if I were audited, the IRS would want me to have figured out the costs rather than work backward.
Tax Professional: RD, Certified Public Accountant (CPA) replied 9 years ago

Yes, you will report the net cash that you received back from the exchange on line 15.

If the other party assumed your loan than you will also include that on Line 15.

 

 

Let me know if you have any question.

 

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.

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Customer reply replied 9 years ago
Reply to RD's Post: The bank was paid for my loan on the relinquished property, and other loans for acquired property were made thru financial institutions. The real question is figuring the cost of doing the exchange, AND whether I can just assume that the very experienced/professional 1031 exchange company figured the closing expenses correctly. The amount I received as cash was the amount not invested or paid as expenses after the closing. Again, when I figure expenses, I come out with a different figure than the exchange company. I'd prefer to use theirs (assuming they know better than me) if I'm not requred to document how I arrived at the expenses.

Thanks~
Tax Professional: RD, Certified Public Accountant (CPA) replied 9 years ago

Why do you come up with different closing costs than what the exchange company had?

 

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Customer reply replied 9 years ago
Reply to RD's Post: If I knew that, I wouldn't be trying to go this route. I bought 5 properties, and have tried to very diligently track the expenses. There is no detailed itemizing from the 1031 exchange company. They paid money out for each closing and sent me the remainder per my request.
Tax Professional: RD, Certified Public Accountant (CPA) replied 9 years ago

In that case, you should consider the exchange expenses based on what they have it provided to you. So the net cash you receive will be the cash after the payoff the the exchange expenses and that will be the amount to be reported on Line 15

I am providing a link to the regulations in order to provide you some more detailed information relating to the Loan that you assume(and the loan given up) as a result of the exchange.

http://a257.g.akamaitech.net/7/257/2422/26mar20071500/edocket.access.gpo.gov/cfr_2007/aprqtr/26cfr1.1031(d)-2.htm

I will be gone for some time but will answer your follow up question, if any, after I return

Let me know if you have any question.

 

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.

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Customer reply replied 9 years ago
I just had a thought. Here's the info from the exchange company on settlement costs - there are:
1)Exchange Expenses (ex: commisions, title charges, termite inspection)
2)Non Exchange Expenses
a)1040 Schedule E Adjustment/Expense (ex: taxes, escrows for repairs, prepaids), and
b)Debt Relief (relinquished Property)or Loan costs (Replacement Property) (ex: appraisal fee, loan fees, Points [points being amatorized over the life of the loan]).

I'm wondering if there are two places I have to deal with this exchange; the first being the 8824 form which is perhaps a summary, and then the individual Schedule E's where I actually record the items from #2 above. If that were the case, I'm not sure what I do with the #1 items. Does this make any sense?

I looked over your example, but it doesn't really deal with the Exchange Expenses.








Exchange expense relates to the costs to dispose of relinquished property and costs to acquire replacement property.
Customer reply replied 9 years ago
I can't wait any longer. I will reject and ask a different question. If you come back, respond to my previous email and we can move foreward. If you don't respond, I'll have to ask someone else this question.
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