How to report 1031 exchange on tax returns

Question

I am wondering if there is anyone on this site who can advise me on how to fill out forms to report a 1031 exchange for 2020. We sold 2 houses and purchased 1 by doing a 1031 exchange. I know I have to fill out 8824 and 4797. I'm not sure if I can put both properties relinquished on the same form 8824. How do I calculate the basis of properties relinquished?

Linda Weygant · Answer

Hi Marie,

The 8824 is one of the most complex tax forms there is.  Many CPA/EAs/Other tax professionals don't touch these forms and refer them off to tax professionals who specialize in this.

It's not the type of thing I'd advise a layperson to do, particularly if you're struggling with the first step, which is the basis calculation.

Marie Z. · Answer

Haha Dave that's funny that most are bald. At this point I think I've lost some clumps of hair working on this.  I believe a good CPA is worth his pay. The problem is finding someone that knows what they're doing when it comes to real estate transactions.

Dave Foster · Answer

@Marie Z., To detemine the basis, you take the net purchase price and add capitalized improvements.  Then you subtract the depreciation (you either took or could have taken).  This is your adjusted cost basis.  You can use a summary 8824.  I don't believe the automated programs like Turbo Tax support that.

Probably worth getting an accountant to help you through this.  Setting up your tables is pretty critical.

Linda Weygant · Answer

BIggerPockets has a tax professional referral page.

https://www.biggerpockets.com/...

Dave Foster · Answer

@Marie Z., and people wonder why CPAs charge so much (and most are bald :)

Marie Z. · Answer

Well, I'm back on here in the hopes I can get some answers regarding how to submit my 1031 exchange tax return. I've exhausted the people I would go to for answers. Tax support and colleagues couldn't help. You're right Linda Weygant, form 8824 is very difficult to fill out but I think I might have it done. Here's my scenario:

• 1. Basis. The cost basis for both properties being relinquished is $258,659, and $116,858. Has been taken in depreciation over 13 years.
• Relinquished Property. The relinquished properties contract  price is $397,000.00, and the current debt to be paid off at settlement is $182,167.
• 
• 2. Relinquished property exchange expenses are $37,118.41, and the $178,379.95 in proceeds were placed in a qualified escrow account by the Qualified Intermediary.
• 
• 3. Replacement Property. The replacement property was purchased for $385,000.00, and a new loan was obtained for $199,232.05. The cash down payment was $186,888.95, and the exchange expenses were $2,621.00

After doing all of this work, I don't know that I'll ever want to do another 1031 Exchange.

Thanks for any advise. Greatly appreciate all the knowledge shared here.

Dave Foster · Answer

@Marie Z. and that's why @Linda Weygant is one of the best!

How to report 1031 exchange on tax returns

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