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Taxpayer exchanged a property years ago and reported

realized gain on Form 8824...
Taxpayer exchanged a property years ago and reported realized gain on Form 8824. Property has been exchanged again. Does taxpayer only report the incremental realized gain from the current exchange or is form 8824 cumulative and the amount reported is the sum of the realized gain on the first exchange plus each subsequent exchange?
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Answered in 7 minutes by:
3/8/2018
Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 940
Experience: Former IRS Revenue Agent
Verified

I'm Fiona, former IRS revenue agent. I am looking at your question and will get back to you soon. Fiona Chen, MPA, Ph.D., CPA, ABV, CFF, CITP,IMTA

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Dear Customer,

1) Form 8824 is for the current event of like-kind exchange.

2) However, the accumulated effect of series, multiple sequential Section 1231 Exchanges is reported on Part III between the realized gain and recognized gain. Your client's adjusted basis on the property currently exchanged should reflect the effect of the previous exchanges. That is, the deferred gain should include all the deferred gains from the prior exchanges. And his/her basis of the property current property should be the basis he has in the original, first property he exchanged.

3) The enclosed article may be helpful.

https://www.cwscapital.com/insights/understanding-realized-vs-recognized-gain-in-1031-exchanges/

4) To make sure that our calculation is correct. Make sure that your client keeps all previous documents of exchanges and Form 8824 previously filled out and filed. You may want to keep them as your file copies, too.

5) For the full disclosure purpose, on the safe side, you may want to attach a statement in the tax return to describe the history of the property's prior exchange history [date is most important so that the IRS would not think we did multiple asset exchange] and show how the basis was still the first exchange's basis. -- probably increased by the multiple transactions' closing costs and commissions paid.

Please feel free to follow up.

Regards,

Fiona

Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 940
Experience: Former IRS Revenue Agent
Verified
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Dr. Fiona Chen
Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 940
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