All Forum Posts by: Jim Hwang

HiJim, I'm sure there are others who will be better at helping you with the calculation, but you'll need to provide the total depreciation that you took on the property during the 15 years that you rented it out. Also, do you have any other capital losses or gains? And, do you have any passive losses from other properties that you might use to offset the capital gain? (Check your most recent tax return for passive loss carry-overs.) Or, can you generate such a loss by making another purchase in the year that you sell? It sounds like you haven't sold yet, which is good, so you might want to consult with a tax professional to help guide your decision. Other strategies to consider are: (1) investment in an opportunity zone fund (though I don't believe the benefits are as good as they were a few years ago), or (2) investing the funds in another property or fund where you can get bonus depreciation in the first year. GOOD LUCK!

@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.

Form 3115 is correct for catching up missed depreciation. Automatic change #7. 

@Jim Hwang I use Idaho Tax and Bookkeeping Ilir is very knowledgably a CPA and EA

@Jim Hwang,

What state do you live in?

@Jim Hwang. ask your 1031 intermediary. I'm betting they will know the answers since this is what they specialize in.

My guess is that you don't have any tax liability for the 2022 tax year because with a 1031 exchange you didn't receive the proceeds. I think that is the point of having a licensed 1031 intermediary hold the money. It is only a taxable gain for you when you actually take receipt of the proceeds and to this point you have not done that.