1031 Exchange Started in 2020 but Completed in 2021 (Form 1065)

[SBTS]

Hello:

I am working on a reverse 1031 exchange involving multiple properties for Form 1065.  Here is the situation:

Client purchased two properties in October 2020 and started a reverse 1031 exchange -- buy first and then sell.

Client then sold three properties to complete the reverse 1031 exchange: Sold the first property in November 2020; and then sold the second and third properties in March 2021. 

Exchange closed in March 2021.

The 45-day identification period and the 180-closing dates are all within the rules.

Since the gain from the sale of the first property (Nov 2020) will be deferred but since the exchange closed in 2021, how to:

(a) record the disposition of asset; and
(b) stop the depreciation in 2020.

Your guidance would be appreciated.  

[George4Tacks]

Hopefully all of this was done with an accommodator that purchased and held the purchases in 2020. You will need to create a pretty big worksheet handle the numbers, both for 2020 and 2021 for the several to less exchange. You must report the first sale in 2020 on the 2020 tax return and the other two on the 2021 tax return. You need to identify which property (or portion of property) that the 2020 sale acquired. 

Be sure to get a big retainer (definitely more than the accommodator charged. 

You stop the depreciation when the property goes out of service, so one in 2020 and the other two in 2021. 

If the client purchased the replacement properties directly, I believe this is a dead in the water non exchange and the client will be most unhappy. 

[SBTS]

Thank you George4Tacks for your response.  

Would I report the first sale in 2020 even if this is all part of one exchange?

The problem is that the two purchases were $575,000 and $70,000 and the first sale was $251,200 all of which took place in 2020.  The subsequent sales in 2021were for $400,000.

I thought that all 3 sales would be reported in 2021 since the exchange closed in 2021.

Yes, an exchange accommodator was appropriately used for these sales/purchases.

Thank you again!

[George4Tacks]

Sales are reported in the year of sale. You will need to figure an appropriate allocation of each sale to each purchase. Not an easy task. Two sales = 651,200 and purchases = 645,000 so it would seem that there may be some gain to report. First sale=251.200/651,000 sets up a percentage to apply to subsequent purchases. You need to figure out the two exchanges at the same time, but report the 2020 sale now and hold on to the paperwork for next year's sales on the 2021 return. Be sure to charge for both now, so the client doesn't skip on down the road next year and use your work that you didn't get paid for. This will take some time. You will need to attach a worksheet to the return to show the one for many and the two for some

Have fun from here on it. 

FYI - https://proconnect.intuit.com/community/practice-advice/discussion/1031-exchange-reporting/01/73345#...