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Tax Season Issues
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Volume #2005, Issue #1 |
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Taxpayers must report their exchange on
the tax return for the year in which the
exchange begins. The exchange is reported
on Form 8824, "Like-Kind Exchanges." This
form requests dates of exchange transactions,
the date properties were "identified" and
financial information obtained from the
closing settlement statement.
For the sale of depreciable rental or business
property, the taxpayer will also need Form
4797, "Sale of Business Property." For the
sale of non-depreciable investment property,
the taxpayer will need Form 1041 Schedule
D, "Capital Gains and Losses."
Refer to Rev. Rul. 72-456 and Reg. 1.1031(k)
- 1(g)(7)(ii) for tax treatment of closing
costs in an exchange. Rev. Rul. 72-456 deals
specifically with broker's commissions but
is considered a guideline for treatment
of other closing costs. The basic rule is
that closing costs reduce realized gain
on the relinquished property, reduce boot
received and are added to the basis of the
replacement property.
Remember, if the taxpayer relinquished property
after October 18th, they have less than
180 days in which to complete their exchange.
The actual deadline is the date their tax
return is due, typically April 15th. The
taxpayer must complete an extension to file
their tax return in order to obtain a full
180-day exchange period.
Be aware that generally the IRS has three
years in which to audit a tax return. However,
the statute of limitations is extended if
a taxpayer fails to report more than 25%
of their gross income. The tax savings from
a deferred exchange often activates this
extension.
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NCS Exchange
Professionals
4811 Hopyard Rd. Suite G-6
Pleasanton, CA 94588
1-866-USE-1031
www.ncs1031.com
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