1031 sold is it ordinary income?

[michele]

Client   I prepared return last year had 1031 exchange No problem. This year he sold that exchange in a few short months. He had long term gains deferred last year in the exchange.

I have never had an exchange then turn around and sell it right away. Lacerte is calculating the deferred as ordinary income.

does all the deferred become short term since the new property he aquired he turned around and sold. Was trying to look it up but not sure

thx

[abctax55]

The carrying period of the old property transfers to the new property. You may need to override short vs long term.

[Moine]

Hello,

I have the same problem, I use proseries .  When I enter the sale date and Sales price system shows a short-term capital gain.  Someone advises me to put the original date of service then all gains would be long-term, then the tax return will be incorrect, would you please advise how do I handle the problem?

[abctax55]

".... then the tax return will be incorrect,"

No, it won't be.  As has already been stated, the holding period of the old property carries to the new property.  

[Moine]

Hello,

Thank you for your quick reply, so you are saying all the Deferred gain would be subject to short term gain is correct.

Here is an example.

The original property was bought 2010, $ 94k with Dep 25K so adjusted basis was 69K, then 2021 Oct, they did 1031 exchange, with deferred gain 123k also replacement prop value was 236K, and 2022 March Sale 2750K.  so, based on fact I put date of acquired and date of service Oct -2021 and adjusted basis of the replacement prop is (236K- 123) =112K and now sold (275K-112K) = 163K Gain,   

Qs 1. Software treats all 163K gain is subject to short term capital gain because of the date of service and date of acquired I put Oct -2021 and sold March -2022.  My question is how I can separate Deferred gain of 123K and report as long-term cap gain and balance 40k is short term.

Extremely sorry to bother you guys.