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Fixed Assets and UltraTax CS 2023 help is now on Help and Support. We're still moving articles, but you can find most content for the 2023 tax year there. Continue using the Help & How-To Center for tax years 2022 and older.

Question

How does UltraTax CS calculate the gross profit and the contract price reported in the Form 8824, line 22 statement?

Answer

UltraTax CS calculates the gross profit and contract price in accordance with IRC Section 453(f)(6) and Proposed Regulation 1.453-1(f). Per Section 453(f)(6)(A), the total contract price shall be reduced to take into account the amount of any property permitted to be received in such exchange without recognition of gain. In other words, the contract price is equal to the total amount received, excluding the FMV of the like-kind property received. Per Regulation 1.453-1(f)(1)(iii), the total contract price is also reduced by any net qualifying indebtedness that does not exceed the excess basis.

Neither Section 453(f)(6) nor Regulation 1.453-1(f)(1)(iii) address exchange expenses when calculating the contract price. UltraTax CS calculates the contract price as the total selling price less any net qualifying indebtedness that does not exceed the excess basis. UltraTax CS does not reduce the selling price by exchange expenses; therefore, the exchange expenses are not included in the contract price.

Per Section 453(f)(6)(B), the gross profit from such exchange shall be reduced to take into account any amount not recognized by reason of IRC Section 1031(b). In other words, the gross profit is equal to the realized gain, less the deferred gain, less the ordinary income under recapture rules.

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