Discussion:1031 crossing years and refunded
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Discussion Forum Index --> Advanced Tax Questions --> 1031 crossing years and refunded
Discussion Forum Index --> Tax Questions --> 1031 crossing years and refunded
Chicagocpa1 (talk|edits) said: | 10 October 2008 |
| Client did a 1031 in Dec 2006 deferring a gain on sale of rental property. A portion of the gain was used to purchase an additional property in 2006. The remainder was refunded in 2007. How is the refund reported in 2007? There is substantial amount of passive rental losses that I presume can be used to reduce the gain reported. | |
| 10 October 2008 | |
| The fact that the 1031 crosses years should have no effect. The entire transaction is looked at (sale escrow(s) and replacement property escrow(s) are taken into account in computing the exchange and computing taxable boot. The net result is reported on Form 8824 and any boot taxable in the year of the sale. If effect, since we file many months after the transaction is complete, we know the end result. The entire transaction is reported and done with on the '06 return. Hope this helps. | |
| October 10, 2008 | |
| 2006 - Form 8824 w/ recognized gain deferred on Form 6252.
2007 - Recognize proceeds via 6252. See Discussion:Failed_1031,_installment_sale_(1031_Across_Two_Years) | |
Chicagocpa1 (talk|edits) said: | 10 October 2008 |
| Thanks Paul. That certainly pointed me in the right direction. I have some follow-up questions.
Since the gain results from sale of rental property, I presume it can be used to take accumulated rental losses on 8582. I also presume from 6252 it should flow through to 4797. Also, could this not increase the depreciable basis of the new property? Thanks. | |
Chicagocpa1 (talk|edits) said: | 13 October 2008 |
| Anyone ha | |
| 13 October 2008 | |
| no, it is not a disposition in a fully taxable transaction, of the entire interest in the activity | |
| 13 October 2008 | |
| we've had that discussion numerous times, all available via the yellow search box | |
Chicagocpa1 (talk|edits) said: | 13 October 2008 |
| I have searched using the yellow search box and can't seem to locate the answers to the exact questions that I have. Perhaps I am missing something.
It doesn't increase the carry-over basis even though boot would increase the carry-over basis? So, if this amount was received with the original transaction, it would have increased the carry-over basis? Can this be used to offset passive losses? Since it was generated from rental properties, it seems to me that this would be passive income from rentals. | |
| 13 October 2008 | |
| perhaps I misled you.
in a failed exchange, the gain is recognized and the passive losses freed up from that property/activity. in a successful exchange, the passive losses carryover (not increasing basis) as the activity wasn't disposed of in a fully taxable disposition. The passive losses continue with the replacement property. | |
Chicagocpa1 (talk|edits) said: | 13 October 2008 |
| Ahhh... I get what you are saying.
What about when a portion of the proceeds were used to buy a property and then the remaining portion eventually refunded. Since I am now recognizing a gain with the portion of the proceeds that are refunded, it seems that I should get to use passive losses? | |
| 13 October 2008 | |
| in that example, there may be a (passive) gain from the part that wasn't successfully exchanged. This gain must be recognized. ("Is that you, Gain?") If this results in an overall gain for the activity for the year, it would free up that amount of passive loss from that activity (notwithstanding the $25k limit which may also free some up). The rest carries over. If this gain recognized plus the operations activity result in an overall loss, it is a passive loss and subject to the PAL rules. | |
Chicagocpa1 (talk|edits) said: | 13 October 2008 |
| When you say "activity" would that be referring to the replacement property that was purchased? Client has multiple rentals all of which are accumulating losses, so perhaps by "activity" you are referring to the cumulative loss from rental activity? Thanks for your help. | |
| 13 October 2008 | |
| unless he has aggregated his rentals (who would? very few) each rental is a separate activity. As such, you track the passive losses by activity. Other activities could include passive pass-throughs. While I'm trying to help you, the questions you bring up make it seem like you might want to review ยง469. There are lots of threads here on TA about passive. I'd brush up right away if this stuff all sounds new to you. | |
