1031 Like-Kind Exchanges: Tax Reporting Tips
Author: James R. Hamill
||2 hours for CPAs
2 hours Federal Tax Related for EAs and OTRPs
2 hours Federal Tax Law for CTEC
Proper Like-Kind Exchange Reporting Essential to Achieving Tax Benefits
Many real estate investor clients like to use Code Section 1031 like-kind exchanges as a way to dispose of one property and acquire another one in a tax-deferred transaction. But the details of these transactions, as well as increased IRS scrutiny, mean tax preparers must take care when moving these transactions to the Form 1040 to achieve the benefits clients expect.
Section 1031 allows a deferral of gain when property held for investment or business use is exchanged for property of a like kind also to be held for investment or business use. Most like-kind exchanges are four-party arrangements involving a qualified intermediary (QI). Section 1031 sets specific time periods on the identification and receipts of replacement property. Related-party exchanges present special challenges and the IRS has aggressively gone after “indirect” related-party exchanges. Partnership exchanges when one or more partners want to cash out are also common problem fact patterns.
Form 8824 must be attached to the return for the year of the exchange. This form reports the basic facts of the exchange (e.g., amount realized, realized and recognized gain, and basis of new property) and also requires related-party exchange reporting. Form 1065 has been changed to target partnership “swap-and-drop” and “drop-and-swap” transactions.
Join nationally recognized tax practitioner and instructor James Hamill, CPA, Ph.D., a tax adviser as well as a QI and exchange accommodation titleholder, for a practical review of the tax reporting issues that most commonly arise in like-kind exchanges. Dr. Hamill will discuss tax preparer permanent file records, Form 8824 and Form 1065 potential traps and how to ensure that the client’s exchange satisfies professional responsibilities for reporting.
Publication Date: December 2017
CPAs, EAs, tax preparers and other tax professionals with responsibility for advising clients with like-kind exchanges and reporting those exchanges on tax returns.
- Statutory Requirements of Like-Kind Exchanges
- Realized and Recognized Gain Computations
- Basis of Replacement Property
- Deferred Exchange Mechanics and Documents
- Uses of Settlement Statements
- Identifying "Same" Taxpayer
- Form 8824 Reporting Mechanics
- How to proof basis computations
- Dealing with exchange closing costs
- Form 1065 reporting issues
- Form 1065 Exchange Questions
- Partnership Debt Issues at Year-End
- At-Risk Basis Issues
- Passive Loss issues
- Title Parking Arrangements
- Describe essential tax reporting issues and obligations in like-kind exchanges
- Identify planning opportunities with like-kind exchanges
- Recognize and apply best practices for preparing returns that include like-kind exchanges
- Differentiate true statements regarding Section 1031 requirements
- Identify the appropriate formula for calculating the basis in the new property in a 1031 exchange
- Recognize proper qualified intermediary facilitated exchanges
- Identify which form must be attached to the return for the year of the sale of the relinquished property in a 1031 exchange
- Describe statements related to partnership debt reporting
- Recognize the tax basis of replacement property in a 1031 exchange
- Calculate the basis of new property in a 1031 exchange, the logical basis is acquisition cost of new property
- Identify the basis of the new property
- Recognize a sale-purchase to qualify as an exchange
- Recognize when deferred exchanges must be identified or received
NASBA Field of Study
Taxes (2 hours)
Basic understanding of federal income taxation.