Dear Tax Talk,We are affairs an advance acreage that was acquired in a 1031 exchange. We don’t appetite to do addition 1031 exchange. How do we account what our tax will be, and how does the IRS apperceive it’s a 1031 acreage rather than aloof acreage we purchased outright? Thank you.– Kathy
Dear Kathy,The adding for the tax owed on the auction of advance acreage that was acquired in a 1031, or like-kind, barter begins on Anatomy 4797, Sales of Business Property.
Back back you acquired this acreage in the 1031 barter transaction, it should accept been appear on Anatomy 8824, Like-Kind Exchanges. So the IRS should already apperceive that this is how the acreage was acquired. Additionally, in Part III of this form, you would accept affected the base of the new acreage you received. Going advanced from back you acquired that new property, you would accept acclimated that base to account any appropriate abrasion on the property. Now that you are affairs the property, you use Anatomy 4797 to address the disposition.
So in summary, this is how a 1031 exchange, or like-kind exchange, progresses over the years:
Like-kind or 1031 exchanges are acclimated by owners who would contrarily accept a ample accretion on the auction of advance acreage they accept captivated for years. Rather than pay tax and accept beneath money to advance in new property, they “exchange” for addition property. It gets complicated because there are all kinds of rules, but about the base carries forward, accountable to adjustments.
Although there are a lot of calculations and requirements, exchanging condoning like-kind acreage for addition acreage is one of the best accepted types of nontaxable exchanges.
Thanks for the abundant catechism and best of luck to you.
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