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October 4th, 2017 by FGG

Tax Reporting for 1031 Exchanges

 

In this blog, Tax Reporting for 1031 Exchanges, we will summarize required like-kind exchange tax forms and comment further about how the filing date of your taxes may impact your like king exchange time-period.

The IRS requires that you complete and file IRS Form 8824 which describes your 1031 Exchange transaction along with your tax return for the same year in which the exchange was completed. You will include a description of your relinquished and replacement properties along with dates of when you sold, identified, and acquired your properties. Any taxable gains on the sale of your relinquished property will need to be reported on IRS Form 4797. Keep in mind that only like-kind properties qualify and that you cannot do a like-kind exchange of a personal residence or for stock or equities and these types of assets are classified as disqualified personal property.

 

We have previously discussed that you must acquire your identified replacement property within 180-days after closing the sale of your relinquished property. Since you are required to report the acquisition date of your replacement property on IRS Form 8824 which is due when your tax return is completed, you may encounter a situation where you may have less than 180 days to conclude your 1031 Exchange transaction. Let’s suppose that you sold your relinquished property after October 17th and on or before December 31st of a given tax year. If you file your tax returns for that year by the normal tax deadline i.e., on or before April 15th of the following year, you will have less than 180 days to conclude your 1031 Exchange (!). To avoid reducing the amount of time to complete the exchange, you should plan to file state and federal tax filing extensions which would then give you the full 180 days allowed under the tax code.

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Hot link the forms cited about to these pdfs:

IRS Form 8824: chrome-extension://oemmndcbldboiebfnladdacbdfmadadm/https://www.irs.gov/pub/irs-access/f8824_accessible.pdf

IRS Form 4797: chrome-extension://oemmndcbldboiebfnladdacbdfmadadm/https://www.irs.gov/pub/irs-pdf/f4797.pdf

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Disclosures

There is no guarantee that any strategy will be successful or achieve investment objectives. All real estate investments have the potential to lose value during the life of the investments. The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities. All financed real estate investments have a potential for foreclosure. Delaware Statutory Trust (DST) investments are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments. Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions. Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits.