Commercial Rental Real Estate & 1031 Exchange

In the year of sale, where "Cash to Seller" is escrowed for 1031 Exchange,
how is the "gain on sale of asset" booked? Is it booked as a liability to
be used as an adjustment to purchased property basis?

I am "just a bookkeeper" with quite a bit of knowledge, and usually depend
on a client's CPA to assist me with any questionable JE's. But, in this
case client uses EA - and I need to book all entries correctly before
financials are turned over. Enough said!!

TIA for any help offered.
N Owen



--

 

"N Owen" <> wrote
> In the year of sale, where "Cash to Seller" is escrowed for 1031 Exchange,
> how is the "gain on sale of asset" booked? Is it booked as a liability to
> be used as an adjustment to purchased property basis?
>
> I am "just a bookkeeper" with quite a bit of knowledge, and usually depend
> on a client's CPA to assist me with any questionable JE's. But, in this
> case client uses EA - and I need to book all entries correctly before
> financials are turned over. Enough said!!




It sounds like you are trying to book a "gain on sale", which isn't right at
this time at all. You don't legally own the escrow account, the
intermediary does. There's nothing to book about the escrow balance.

You remove the asset (making a credit entry for it's book cost), remove the
accumulated depreciation (making a debit entry for it's book amount), and
creating an asset called "escrow basis" (a debit) for the difference. This
is your tax basis in the escrow account. There's no gain or loss at this
time.

When the replacement property gets closed, you credit the escrow basis
account, and credit cash paid and/or mortgage established with the debit
entry being your tax/book basis in the replacement property.

The deferred gain never makes it to your books. The replacement property is
properly recorded at your historical cost basis + any cash added or borrowed
for the purchase.






It's probably not your place to tell the EA what to do, but most people wait
on filing the returns (and file extensions if needed) to get the 1031 closed
on the back end before preparing the prior year returns.







--
Paul Thomas, CPA

 

Paul Thomas, CPA wrote:
> "N Owen" <> wrote
> > In the year of sale, where "Cash to Seller" is escrowed for 1031 Exchange,
> > how is the "gain on sale of asset" booked? Is it booked as a liability to
> > be used as an adjustment to purchased property basis?
> >
> > I am "just a bookkeeper" with quite a bit of knowledge, and usually depend
> > on a client's CPA to assist me with any questionable JE's. But, in this
> > case client uses EA - and I need to book all entries correctly before
> > financials are turned over. Enough said!!
>
>
>
>
> It sounds like you are trying to book a "gain on sale", which isn't right at
> this time at all. You don't legally own the escrow account, the
> intermediary does. There's nothing to book about the escrow balance.
>
> You remove the asset (making a credit entry for it's book cost), remove the
> accumulated depreciation (making a debit entry for it's book amount), and
> creating an asset called "escrow basis" (a debit) for the difference. This
> is your tax basis in the escrow account. There's no gain or loss at this
> time.
>
> When the replacement property gets closed, you credit the escrow basis
> account, and credit cash paid and/or mortgage established with the debit
> entry being your tax/book basis in the replacement property.
>
> The deferred gain never makes it to your books. The replacement property is
> properly recorded at your historical cost basis + any cash added or borrowed
> for the purchase.
>
> It's probably not your place to tell the EA what to do, but most people wait
> on filing the returns (and file extensions if needed) to get the 1031 closed
> on the back end before preparing the prior year returns.
> --
> Paul Thomas, CPA
>

Paul-Thank you for your response. The "cash to seller" off the closing
stmnt is what is deposited to the exchange company. I have a other
asset acct set up to hold that figure in. Looks like I need another
acct setup to hold the tax/book basis in until property exchange is
complete. Again, thanks!

 

"Nanny95" <> wrote
> Paul-Thank you for your response. The "cash to seller" off
> the closing stmnt is what is deposited to the exchange
> company. I have a other asset acct set up to hold that figure in.



But it's not your asset. You don't take the property relinquished off the
books using the same method you do for a taxable sale.






--
Paul Thomas, CPA

 

On Fri, 19 Jan 2007 13:38:54 -0500, "Paul Thomas, CPA"
<> wrote:

>
>"Nanny95" <> wrote
>> Paul-Thank you for your response. The "cash to seller" off
>> the closing stmnt is what is deposited to the exchange
>> company. I have a other asset acct set up to hold that figure in.
>
>
>
>But it's not your asset. You don't take the property relinquished off the
>books using the same method you do for a taxable sale.
>

>--
>Paul Thomas, CPA
>
>
>
OK-Is the original asset left on the books until exchange is completed?
N Owen



--

 

"N Owen" <> wrote
> OK-Is the original asset left on the books until exchange is completed?



Nope. That asset is gone. You are replacing it with the net book value in
the escrow account held by the intermediary.


For the sale of the old property you:
Credit the property asset for it's book cost.
Debit the accumulated depreciation for the book A/D.
Debit an account called "Escrow Basis" or some such title.


You no longer are showing the property you no longer have, you are showing
the same asset amount, just in the escrow account.






When the replacement property is closed you:
Credit the "Escrow Basis" account.
Credit cash for any amount(s) paid.
Credit for any mortgages on the replacement property.
Debit the account for the replacement property.


You end up recording the new asset at the basis of the old asset + cash paid
+ debt taken on the replacement property.







There will be some other entries for closing costs and the like on both ends
that get woven into the above basic entries.






--
Paul Thomas, CPA

 

On Sat, 20 Jan 2007 09:35:13 -0500, "Paul Thomas, CPA"
<> wrote:

>
>"N Owen" <> wrote
>> OK-Is the original asset left on the books until exchange is completed?
>
>
>
>Nope. That asset is gone. You are replacing it with the net book value in
>the escrow account held by the intermediary.
>
>
>For the sale of the old property you:
>Credit the property asset for it's book cost.
>Debit the accumulated depreciation for the book A/D.
>Debit an account called "Escrow Basis" or some such title.
>
>
>You no longer are showing the property you no longer have, you are showing
>the same asset amount, just in the escrow account.

>
>When the replacement property is closed you:
>Credit the "Escrow Basis" account.
>Credit cash for any amount(s) paid.
>Credit for any mortgages on the replacement property.
>Debit the account for the replacement property.
>
>
>You end up recording the new asset at the basis of the old asset + cash paid
>+ debt taken on the replacement property.
>
>There will be some other entries for closing costs and the like on both ends
>that get woven into the above basic entries.
>
>--
>Paul Thomas, CPA
>
>
>
Paul-Thanks for your confirmation. After all our messages - this confirmed
how I made the original entry. I just use two different accounts in the
original entry when booking the sale. One is an asset (Pending 1031
Exchange) that is the "cash due to seller". This agrees with the closing
statement after all items are booked. The other is a current liability acct
(Basis-Pending 1031 Exchange), which under normal curcimstances would have
been the "gain on sale" or "deferred gain on sale" if that had been the
case where the owner carries the note.
N Owen



--

 

>
>"N Owen" <> wrote
>> OK-Is the original asset left on the books until exchange is completed?
>
>
>
>Nope. That asset is gone. You are replacing it with the net book value in
>the escrow account held by the intermediary.
>
>
>For the sale of the old property you:
>Credit the property asset for it's book cost.
>Debit the accumulated depreciation for the book A/D.
>Debit an account called "Escrow Basis" or some such title.
>
>
>You no longer are showing the property you no longer have, you are showing
>the same asset amount, just in the escrow account.

>
>When the replacement property is closed you:
>Credit the "Escrow Basis" account.
>Credit cash for any amount(s) paid.
>Credit for any mortgages on the replacement property.
>Debit the account for the replacement property.
>
>
>You end up recording the new asset at the basis of the old asset + cash paid
>+ debt taken on the replacement property.
>
>There will be some other entries for closing costs and the like on both ends
>that get woven into the above basic entries.
>
>--
>Paul Thomas, CPA
>
>
>
Paul-Thanks for your confirmation. After all our messages - this confirmed
how I made the original entry. I just use two different accounts in the
original entry when booking the sale. One is an asset (Pending 1031
Exchange) that is the "cash due to seller". This agrees with the closing
statement after all items are booked. The other is a current liability acct
(Basis-Pending 1031 Exchange), which under normal curcimstances would have
been the "gain on sale" or "deferred gain on sale" if that had been the
case where the owner carries the note.
N Owen



--
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