1031 exchange when a 1099-S is received before the exchange is complete

[corinnerichard]

Please help!  client sold his residental rental building on Dec. 28, 2018 earmarked thru the contract for 1031 exchange.  he received a 1099 S FORM with line 2 filled in for gross proceeds of $760,000. How do I notify the IRS that this transaction is a 1031 exchange.  He has the same type of residental rental building that he will be buying with that money in roughly 3 weeks, his loan has been approved,  And what do I do with the depreciation he has taken from the 10 years on the old building.  What do I do with the closing costs, if anything.   Thank you

[Intuit_Devin]

CORRECTED: The 8824 will explain the 1099-S. You may need to file an extension in order to have all the closing details necessary from this transaction.

[CVTS]

I too have a 1031 Exchange all completed in 2018. Also received a 1099-S. Do I complete the 8824 first and what about the asset worksheet for the old asset and the new asset?

I don't want to miss a step.

[IntuitCharlene]

https://accountants-community.intuit.com/articles/1608733-1040-completing-a-like-kind-exchange-of-bu... walks you through the process of a Like Kind Exchange in ProSeries so you don't miss any steps. 

[Intuit_Devin]

Since everything was completed in one year, the Form 8824 should provide the IRS with all the info they need to account for the 1099-S.

That said, what some preparers will do is still report the 1099-S on Form 8949 using code O to zero out the gain. The idea is doing this makes it less likely the IRS system will think there's unaccounted for 1099-S income because they fail to connect it to the 8824. I don't have any hard data on whether this reduces the likelihood of IRS correspondence, but it's something that some preparers choose to do.

Regarding the asset worksheets, the new asset basically takes the place of the old asset, it's often as simple as just renaming the asset in the worksheet and continue depreciating on the schedule it's been depreciating on. Any additions to basis (like additional cash contributed for new property) are treated as a new and separate asset. So just create a new asset of the same type to start the depreciation on the additional basis. (It's basically like doing a property improvement and the improvement becomes its own asset.)

[CVTS]

What if the new asset is less and cash was received?

[Marc-TaxMan]

@corinnerichard NOTE:  actual filing 2018 1040 TERMINATES the 180 day exchange peroid early.

If you file 2018 1040 before leg 2 of exchange is done, the exchange fails as not bening completed during allowed exchange period.

[Marc-TaxMan]

WRONG @Intuit_Devin 

File 1040 without 8824 because the exchange is not yet completed PREMATURLEY TERMINATES the exchange period.

[Intuit_Devin]

@corinnerichard Marc is correct. I was confusing the 1031 reporting rules with options trading rules (where you report a transaction in the year the transaction closes rather than opens). For the 1031 you should prepare the 8824 in the year the transaction opened. Hope you see this.

[CVTS]

These instructions were good - thank you. However, I'm still having issues with the new asset. What cost do I enter and do I have to key in the accum depreciation taken on relinguished asset? Since both new & old assets are rentals, I want to be sure each Sch E calculates the correct depreciation for the partial year.

[sjrcpa · Accepted solution]

@CVTS Then you have a taxable gain up to the amount of cash (boot) received.