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1031 Carryover Calculations

Posted by taxguru on October 18, 2006



Subject: Exchange Question

How do I determine the basis of the new property with consideration of both properties being mortgaged?  (Increase in net or decrease in net)

 Is there a gain realized if the property’s FMV I am receiving is less than that of the property I disposed of?



When you prepare the 8824 to report the exchange to IRS, it will end up with the basis of the new replacement property.  The 8824 is a complicated and convoluted schedule; so most tax prep software programs have worksheets to assist in putting the right figures in the right place, including the amounts of debt on both the original and replacement properties. 

Some other programs also have handy 1031 worksheets, such as the TaxTools program from CFS.  There are links to both the 8824 and a separate worksheet here.

Depending on the amount of exchange expenses incurred in the deal, it possible that trading down may or may not result in a currently taxable gain on the exchange. The 8824 and worksheets will give that result.

Kerry Kerstetter



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