Looking for CPA Re: capital gains and 1031 exchange questions

[Jim Hwang]

Hello all, I have about 3 weeks to nominate a replacement property for my 1031 exchange and am looking for a CPA who can answer questions regarding the tax liability when the replacement period straddles tax years like mine does, as well as some other nuances of my situation. Thanks!

[Dave Foster]

@Jim Hwang, One thing your QI hasn't mentioned is that your 1031 must be complete before the date of your next tax filing.  If you sold in late 2022 then your 1031 must be complete before filing your 2022 taxes.  Now of course the answer to get your full 180 days is to simply file an extension.  But the reason for this quirk is what is important.

Your 1031 exchange will always be reported on your tax return for the year in which you sold the property.  That is the year the 1099 is generated by the title company.  And the year you potentially recognize the gain. If you sell in 2022 the 1031 will be reported on your 2022 taxes with the form 8824.  If you don't complete your 1031 exchange then your accountant doesn't report anything and you recognize the gain in 2022.  And have to pay the tax in 2023.  It's like the 1031 never happened.

But in the rare event like yours where you don't receive the funds until 2023 even if you don't complete a 1031 then you have an option to treat the sale as an installment sale in 2022 with the funds received in 2023.  If your accountant sets it up this way then even though you don't complete your 1031 exchange you will still get until April of 2024 to pay the tax.

These options - full deferral, no deferral, or installment sales treatment are all why your 1031 has to be over by the time you file your next taxes.