Real Estate Tax Question

I sold a rental property at the end of 2015 and the proceeds were sitting in an exchange account until mid-January. Since I technically never touched the money in 2015, does this go on 2015 taxes or 2016 taxes?

PS I know you may or may not be a CPA but you are definitely not my CPA

I was going to say 2015 but since upon using Google to see what an exchange account is well “exchange account” didn’t bring up ANYTHING at all to do with financial institutions nor did “bank exchange accounts”. Though on the second page of the google results for the first search i did find an Asset Exchange for accounting purposes. See a qualified CPA.

Though IMO if you had access to the money it would be counted on your 2015 taxes whether you did anything with it or not.

Though I am starting to think I am posting responses to the GQ forum in the wrong manner. I am catching myself in IMO and there is a forum for that which is not this one.

:slight_smile: It’s a complicated issue which is why I am trying to find clarification.

It is a 1031 exchange, so I did not have access to the money. The exchange account basically holds the money until you initiate another property purchase, which in my case didn’t happen until 2016. So… yeah. I dunno either.

Here you go:

"How do you report Section 1031 Like-Kind Exchanges to the IRS?

You must report an exchange to the IRS on Form 8824, Like-Kind Exchanges and file it with your tax return for the year in which the exchange occurred. "

Thank you, ZipperJJ. I guess my question is even more basic than that-- the Exchange was initiated in 2015 (i.e. the proceeds went to an Exchange facilitator) but was not completed until 2016. So if the tax code says “the year in which the exchange occurred,” that means the year in which it was completed?

This really belongs in IMHO. Your answer is that you should consult with your tax lawyer or accountant to do this correctly.

If you are dealing with real property, from the time you sell your old property you have 45 days to identify the property you want to buy and 180 days to complete the exchange for a Section 1031 tax free exchange. When you identify the property you want to buy, you have to give notice to an appropriate person within the 45 days. When you sell your original property, you have to keep the funds with a “qualified intermediary or other exchange facilitator” in the words of the IRS. We have no idea if you did those things, so we can’t tell you whether you can still reasonably claim to be completing a Section 1031 exchange. If you have done everything correctly so far, and you actually complete the 1031 exchange correctly, you will report the Sec. 1031 exchange for the 2016 tax year (i.e., with the tax return you file in 2017).

If you don’t complete your 1031 exchange correctly, you have to recognize the gains in 2015. You can file an extension on your 2015 tax return to get more time to file if you need more time to figure out if you’ll get the exchange done in time. But, the general rule is that you must pay your 2015 tax liability by the “April 15th” deadline (actually, it’s April 18, 2016 for year 2015 returns). That means if you don’t expect to get your exchange done on time, you should pay the taxes on the gain by the tax filing filing deadline. If you do expect to make the exchange on time but you later fail to do so, you will have to amend your 2015 return and possibly pay penalties for late payment of taxes.

Everything with regards to the 1031 is on the up-and-up, so I think your answer is sufficiently clear. Thank you.

You can also ask the qualified intermediary these questions. The ones I’ve dealt with seem to know everything about the tax issues arising from the exchange.