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Trying to fill out form 8824 for a part 121 and 1031

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Trying to fill out form 8824 for a part 121 and 1031 transaction but he instructions for line 20 make it seem like we can't deduct the $500,000 121 home exclusion. So that the end result is that the entire gain is recognized (sales price minus adjusted basis) after filling out the 8824, one for the part home and another for part business.

Accountant's Assistant: The Accountant will know how to help. Is there anything else important you think the Accountant should know?

The property is a two family and 50% of the home is primary residence and the other portion is rental/investment property

Submitted: 8 months ago.Category: Tax
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Customer reply replied 8 months ago
See attachment for details of my draft calculation. I know that the 1031 portion of the gain is partially taxable.
Answered in 9 hours by:
12/12/2017
Tax Professional: Barbara, Enrolled Agent replied 8 months ago
Barbara
Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 6,666
Experience: 20+ years of experience in tax preparation; 30+ years of experience as a real estate/corporate paralegal.
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Welcome to Just Answer. My name is ***** ***** I will be happy to assist you.

From Form 8824 instructions when part of the property was your primary residence and part of the property was used for business:

If the property given up was used partly as a home, and partly for business or investment, you will need to use TWO SEPARATE FORMS 8824 as worksheets. Use one worksheet for the part of the property used as a home, and the other worksheet for the part used for business or investment. Fill out only lines 15 through 25 of each worksheet Form 8824. On the worksheet Form 8824 for the part of the property used as a home, follow steps (1) through (3) above, except that instead of following step (2), enter the amount from line 19 on line 20. On the worksheet Form 8824 for the part of the property used for business or investment, follow steps (1) through (3) above only if you can exclude at least part of any gain from the exchange of that part of the property; otherwise, complete the form according to its instructions. Enter the combined amounts from lines 15 through 25 of both worksheet Forms 8824 on the Form 8824 you file. Don't file either worksheet with Form 8824.

https://www.irs.gov/pub/irs-pdf/i8824.pdf

Please let me know if I can assist you further.

Thank you and best regards,

Barb

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Customer reply replied 8 months ago
HI Barbara. I did just that. That is why I posed my question. The result that I am getting indicates that the home part of the transaction gain is recognizable. That doesn't make sense if the client under section 121 "is" allowed a home owner exclusion of $500,000(married filling jointly). I've followed the instructions which indicate not to factor in the 121 exclusion, for the part home portion. Please see attachments. Is it that the Home Owner Exclusion should be factored in elsewhere in the tax return which would offset the gain on the 8824? Thanks!
Tax Professional: Barbara, Enrolled Agent replied 8 months ago

Give me a few moments to review your attachments.

Just to confirm--you used two Form 8824s as worksheets and then completed a third 8824?

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Customer reply replied 8 months ago
the third simply combines the two. I only sent you the two individual ones to show you the impact of the home part which clearly shows that the entire gain is being recognized. the investment portion is as expected as the transaction does not qualify for gain deferral as the client did not trade up. The replacement property is less than the sale price of the replenished.
Tax Professional: Barbara, Enrolled Agent replied 8 months ago

Thank you.

I'll review them and let you know.

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Tax Professional: Barbara, Enrolled Agent replied 8 months ago

You should have a Schedule D for the Section 121 exclusion amount.

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