Like-Kind Exchange problem

[Babak]

My client had a 1031 exchange in 2023 (when I did not work with them). I tried to construct the 2023 tax return for them first and then move to 2024 return. I entered info regarding the 1031 exchange using this link (https://accountants.intuit.com/support/en-us/help-article/federal-taxes/completing-like-kind-exchang...) and saw two problems: 1. The depreciation for the old property was not accurate (it was sold in February but it appears to be depreciated for almost the entire year). 2. the old property (that was given up in Feb 2023) is still being depreciated in 2024. What am I doin wrong? is it another/better article that I can use to enter the 1031 exchange without having these problems? How is this transaction supposed to show up in the next year return?

[Accountant-Man]

Let's pretend: TP sold an asset for the business or rental with an original basis of $100k and adjusted basis on sale of $60k. They sold the old one for $100k and bought a new one for $100k,

The deferred gain is $40k, and the new property has a basis of $60k, which is the only number being depreciated.

The new property, basis $60k, should be depreciated over 27.5 or 39 years straight line, which is not the same as the old property continuing depreciation.

[Babak]

Thank you so much for your explanation, 100% agree with what you said. The problem is the deferred gain now shows up in the 2024 tax return added to the income. Probably the entry for the exchange in 2023 had a problem. I did exactly what the article mentioned in my original post explained. I think I need help with that part. Is there a more comprehensive article about entering the like-kin exchange details?

[TaxGuyBill]

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@Babak wrote:

 1. The depreciation for the old property was not accurate (it was sold in February but it appears to be depreciated for almost the entire year). 2. the old property (that was given up in Feb 2023) is still being depreciated in 2024.

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Unless they elected out of that treatment, in most cases it is correct to continue to depreciate the old property using the old placed in service date.  Then there is a second asset that is depreciated for the 'extra' amount paid for the property using the new placed in service date.

There is an option to elect out of that treatment and treat the new Basis as the only asset to be depreciated.  But you would need to manually enter the disposition date on the old Asset Entry Worksheet to stop the depreciation (filling out the 8824 does not automatically do that).  [Edit: Sorry, I didn't see this was ProConnect; I am unsure if that is the same method in ProConnect as it is in ProSeries].

[Babak]

Thank you, what about the gain showing up in the 2024 return while it should be deferred?

[TaxGuyBill]

I have no idea how the could happen.

Where is it showing up?

Was it showing up immediately after transferring 2023 to 2024?  Or were you entering something and then it showed up?