Understanding ProConnect Tax diagnostic ref 2050607

This article will help you understand the following diagnostic in Lacerte:

• Disposition # {PrefixNum} : Under the newly enacted "Tax Cuts and Jobs Act", like kind exchanges completed after December 31, 2017 are limited to exchanges of real property that are not primarily held for resale. A transition rule does provide relief for a transaction if the property given is disposed of, or if the replacement property is received prior to January 1, 2018. Please review the disposition to confirm it qualifies as a like kind exchange under the new law. If not, the disposition should be entered as a normal disposition and not like kind exchange.

What does this diagnostic mean?

Starting in 2018, this diagnostic now shows up whenever a Like-Kind Exchange has been entered. It reminds preparers to check that the entry meets the new rules. Review the Dispositions in the tax return to make sure the property entered qualifies. The new regulations state:

• For 2018 and later years, section 1031 like-kind exchange treatment applies only to exchanges of real property held for use in a trade or business or for investment, other than real property held primarily for sale. Regulations sections 1.1031(a)-1, 1.1031(a)-3, and 1.1031(k)-1 provide a definition of real property under section 1031, address a taxpayer's receipt of personal property incidental to the like-kind real property received, and apply to like-kind exchanges after December 2, 2020.

This diagnostic is a reminder and will not impact your ability to e-file the return.