Tax Season Tips for 1031 Exchanges

Tax season is in full swing, and many investors, taxpayers, and CPAs are working hard to file their taxes on time. Investors who engage in 1031 exchanges often have questions about how to report them on their tax returns. In this article, we are going to offer a few tips for 1031 exchanges this tax season.

Talk to Your CPA

The most important tips we can give you is to talk to your CPA about your 1031 exchange as it relates to your tax situation. It’s best to inform your CPA of any like-kind exchanges early in the process, but at the very least, be sure to inform them of the exchange prior to filing your tax return.

File Form 8824

IRS form 8824 is the standard method used to report your 1031 exchange to the IRS in your tax return. This form tells the IRS that you have completed, or are in the process of completing a 1031 exchange. It also provides the details of the exchange so they understand where the net proceeds are and where they are going to be reinvested.

Like-Kind Exchanges of Real Estate

Like-kind real estate exchanges offer a seamless way for you to defer your capital gains taxes on the sale of real estate, and keep your money working for you in a continued real estate investment property. While that may sound easy, 1031 exchanges are often complex and require a skilled qualified intermediary to successfully navigate. Contact CPEC1031 today to set up a time to chat with one of our skilled Minnesota qualified intermediaries. Our main office is located in downtown Minneapolis, but we work with clients throughout the United States.

• Start Your Exchange: If you have questions about 1031 exchanges this tax season, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

Reporting a 1031 Exchange with Form 8824

Form 8824 is a little worksheet that you attach to your tax return to report the 1031 exchange. The 8824 is sort of like the answer to the IRS’s question of "where’s my money?" Because when you sell the relinquished property, the title company, law firm, or closing agent that sells and closes that relinquished property is required to report that sale on a 1099 so the IRS is going to know that you sold your relinquished property and they’re going to be wondering where the money is.

Filing Form 8824

The form 8824 answers that question by saying we sold that relinquished property and here's the replacement property that we purchased, and it gives the IRS all the information they need to know to line up and see how the dots are connected between the sale of the relinquished property and the purchase of the new property.

Sometimes taxpayers that sell say in one year and acquire the replacement property in the subsequent year are uncertain what year they file the 8824. Is it the year from which the sale occurred or is it in the year that the purchase occurred? The answer is you need to file the 8824 for the tax return applicable to the year you sold the relinquished property. The IRS is going to receive that 1099 for the year in which you sold your relinquished property and they're going to be asking where's my money. And the answer will come from the 8824 in the year in which you sold your relinquished property.

• Start Your 1031 Exchange: If you have questions about form 8824, feel free to call me at 612-643-1031.

Defer the tax. MAXIMIZE your gain. 

© 2016 Copyright Jeffrey R. Peterson All Rights Reserve