1031 Exchange reporting on 1040 Sch E land only

Forum|Forum|4 months ago
March 4, 2026
1 reply
5 views

Hello All,

My client identified 2 replacement properties and relinquished 1 property in 2025. The final date to complete the exchange on the 2nd property would have been 2026 but that part of the exchanged failed in 2026. I am confused as to what I am reporting in 2025 and what to report in 2026 for the failed exchange, if anything. There was $354,700 gain, $325,426 mortgage paid off, $33,744 expense of sale. I know the basis in the new asset will be $292,000. Is there anything left to report in 2026? I admit I am confused by this one. Be kind and thank you.

Lacerte Tax

George4Tacks

Level 15

The 2025 sale now has much bigger boot and bigger taxable gain. You likely need to file amended returns. I assume the return was filed too soon and did not wait for all the pieces to fall into place. Now also interest on all the tax on gains will be due. The sale year is the year affected by any failure in an exchange. e.g. Reverse exchange started with replacements in 2025 for a sale in 2026 - any failure (such as failure to sell inside the required time period) affects 2026 tax year.

2026 will only be impacted by the basis in the one property that was acquired as a replacement.

Answers are easy. Questions are hard!

P

pat11Author

Level 5

Hi George. The 2025 return has not been filed yet so no need to amend. I did some more reading this evening. Here is what I figured out. The relinquished property sold in October 2025. Two replacement properties were identified in the 45 Day identification period. However, one was not closed on and the one that was closed on was a lesser value than the relinquished property. I don't think the second property is still available even though there is some time left in the 180 day exchange period. I also figured out that because this carried over into 2026 I will have to extend the return until the exchange period ends because it will be after April 15, but I also don't think it's worth extending because that second replacement property is no longer available. I believe this is all reportable in 2025 but that is confusing me because the intermediary has not yet returned funds. I also think there is some gain because the replacement property is worth less than the relinquished property. If I'm wrong, please tell me I know it's early in the season but this stuff is already getting to me. Thank you.

Sign up

Login with SSO

Let's get you signed in

Login with SSO

Scanning file for viruses.

This file cannot be downloaded