Reporting Your 1031 Exchange for Income Tax Purposes
Your Federal income tax return should reflect any 1031 exchange transactions that were started within that calendar year. If your transaction takes place over the course of two calendar years, the Investor should file an extension for their return that was to be filed for the year in which the transaction was started.
Investors have a three year statute of limitations issued by the Federal Government regarding income tax related audits; however, there are instances where the IRS can exceed this statute, especially is income is under-reported in any instance when the Investor files their return or any other form of fraud is detected.
If an Investor’s 1031 exchange fails, they may still be able to defer their capital gains, even on a partial basis, depending on the particulars of any given situation. It’s important to consult with a tax professional in regards to this. In addition, if an investor has completed IRS Form 6252 and accepted a seller carry back note as part of the consideration from the buyer of the Investor’s relinquished property, they may be able to report most or all of the taxable gain under the installment sale basis pursuant to Section 453 of IRS Code.
To make sure that the Investor has complied with the 45 calendar day identification rule and the 180 calendar day 1031 exchange period, the IRS will need the date the like-kind replacement property was acquired by the Investor, the date the like-kind replacement property was identified to the Investor’s Qualified Intermediary, the date the Investor’s relinquished property was acquired by and conveyed to the buyer, and the description of the Investor’s relinquished and replacement properties.
Taxable gain must be allocated between capital gain , Section 1231 taxable gain, unrecaptured Section 1250 taxable gain, and ordinary income depreciation recapture. Also needed by the IRS are the values of the relinquished/replacement properties, any liabilities paid off, sold, or acquired, and overall expenses incurred by the Investor; IRS Form 8824, Part III, is used to calculate the Investor’s gain on the disposition.
Disclaimer: 1031 exchange made simple does not guarantee the performance of the QI's in our referral network and we can not be held liable for any misrepresentations or mistakes in regards to a 1031 exchange by one of the QI's that we refer to you. 1031 Exchange made simple does not provide tax advice nor can we make representations regarding the tax consequences of an exchange transaction. 1031 Exchange made simple is a 1031 QI Referral Network. 1031 made simple is not responsible (in any way) for the performance, creditability, and financial condition of any QI in our network. In this new economic environment it is imperative that all potential 1031 exchange customers do their own due diligence and research on any QI that they may use, on a 1031 exchange. Please verify and check the validity of the Bonding and Insurance of your QI. It may be wise to have your 1031 exchange accounts set up as separate, individual customer accounts. Our web site is to be used as a information based web site only. All parties doing a 1031 exchange must consult their tax advisors or attorney for this information.
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