DeferEm.com 1031 Tax Exchange Help

Related Party Exchange Information

What is a related party?

According to IRS regulations, a related party includes family members such as spouses, children, grandparents, parents, brothers, sisters, and grandchildren. A related party also includes business entities, like corporations and partnerships where an individual holds more than a 50% interest.

What is a related party exchange?

If the buyer of the sold property or the seller of the purchased party are related, the IRS considers the transaction to be a related party exchange. Special rules may apply for these uncommon types of exchanges.

What rules apply to a related party exchange?

If either related party sells the property within two years of the property transfer date, the deferred gain will be recognized. There are three exceptions to this rule. One is if either related parties dies. Another exception occurs if the property is condemned, is involuntary converted, or is destroyed by natural disaster. The last exception is if the IRS can be convinced that the exchange was not done to avoid paying taxes.

What are the reporting requirements for related party exchange?

If you were involved in a related party exchange, you must complete Part II of the IRS Form 8824. It will need to be filed two years after the last transfer of the property in the exchange.

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What are the rules for exchanges with related party?
IRS Definition

What's like kind property?
Like Kind property

Exchanging a like kind property
IRS publication 544

Overview

What does DeferEm do?

DeferEm is a guided process that allows you to minimize your taxable gain while maximizing your tax deferral. It automatically generates an IRS Form 8824 and an easy to understand exchange report.

How does DeferEm work?

DeferEm is a three step process. First you will enter information from closing statement(s) about property(ies) sold. Next you will enter information from closing statement(s) about properties that you purchased. Lastly you can print out form 8824 and easy to understand exchange report for your taxes.

Why should I use DeferEm?

Generating form 8824 on your own can be a daunting task that is open to error. The DeferEm Tiny, Simple Application (T-Sap) gets the job done in 1-2-3 easy steps and generates an easy to understand exchange report.

What does changing the tax year do?

If you did an exchange this year, you can enter the current year's information to prepare for the next year's tax season. Although changing the tax year will have no effect on your exchange, you can change the tax year to report exchanges in the years they occurred.

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What's 1031 (Like Kind) exchange?
IRS Definition

What's like kind property?
Like Kind property

Exchanging a like kind property
IRS publication 544

Setup Sold Property(ies)

What am I doing now?

On this page you will enter information about properties that you sold during the year.

What am I doing next?

After you've entered information for your sold properties, you will return to the overview. You will be able to enter information about your sold properties from your closing statement.

Do I have to enter the address(es)?

You do not have to enter the actual address, but it will make it easier for you to identify if you have multiple properties.

What is a 1031 exchange?

A 1031 exchange is a transaction that allows taxpayers to defer taxes that would normally be due on the sale of an asset if there is a profit. You can defer taxes on the profit by reinvesting the proceeds into a new like-kind property.

Learn more from IRS...

What's 1031 (Like Kind) exchange?
IRS Definition

What's like kind property?
Like Kind property

Exchanging a like kind property
IRS publication 544

Closing (Settlement) Information for Sold Property

What am I doing now?

Expenses related to the sale of a property are listed on the Closing Statement. On this page you will enter settlement expenses (exchange expenses) to minimize your taxable gain.

What am I doing next?

When you continue, you will have the opportunity to enter information regarding your adjusted basis using your last years' tax return.. DeferEm will then determine your taxable gain.

What is a Closing Statement?

The Closing Statement, also known as the settlement statement, is a form developed by the office of Housing and Urban Development to ensure real estate transaction costs are fully disclosed. The form is used to itemize all charges imposed upon a borrower and seller from a real estate transaction. It gives each party a complete list of their incoming and outgoing funds.

Why do I want to use my Closing Statement?

Exchange expenses on your closing statement decrease your taxable gain and are sometimes overlooked in calculating gain. These costs can include fees like title and settlement charges, to lawyers and notary fees, to stamps and other taxes.

Additional Information for Sold Property

What am I doing now?

You are entering the adjusted basis to determine the gain on the sale of this property.

What am I doing next?

You will return to the overview when you are done with this page, and you will enter the properties you purchased to complete the exchange information.

What is an Adjusted Cost Basis?

The basis of an asset is adjusted for improvements and deductions. It is the contract sales price minus land value, plus improvements, minus depreciation claimed in prior years.

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What's Adjusted Basis?
IRS Definition

How to determine adjusted basis?
Determining Adjusted Basis

Basis of Assets
IRS publication 551

Setup Purchased Property(ies)

What am I doing now?

On this page you will enter information about properties that you purchased during the year.

What am I doing next?

After you've entered information for your purchased properties, you will return to the overview. You will be able to enter information about your purchased properties from your closing statement.

Do I have to enter the address(es)?

You do not have to enter the actual address, but it will make it easier for you to identify if you have multiple properties.

What is a 1031 exchange?

Closing (Settlement) Information for Purchase Property

What am I doing now?

Expenses related to the purchase of a property are listed on the Closing Statement. On this page you will enter settlement expenses (exchange expenses) to minimize your realized gain.

What am I doing next?

In the next step, you will generate a IRS Form 8824 and an Exchange Report.

What is a Closing Statement?

The Closing Statement, also known as the settlement statement, is a form developed by the office of Housing and Urban Development to ensure real estate transaction costs are fully disclosed. The form is used to itemize all charges imposed upon a borrower and seller from a real estate transaction. It gives each party a complete list of their incoming and outgoing funds.

Why do I want to use my Closing Statement?

Exchange expenses on your closing statement decrease your realized gain and are sometimes overlooked in calculating gain. These costs can include fees like title and settlement charges, to lawyers and notary fees, to stamps and other taxes.