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I recently sold rental property (A) and purchased another (B) for the amount of gain in the sale of property (A). I thought that by doing this I would not have to pay taxes on the gain. My accountant is telling me that I will end up paying taxes, a lot, because I should have bought a property of the same value or more. Is this true?

I bought Property (A) for 107,500 and sold for 270,000 for a gain of 162,500. I purchased property (B) for 162,000.

As my accountant has explained, form 8824 (like kind exchange)will be filled out as follows: (I left out depreciation, expenses, etc. for simplicity)

1)Cash Received: 108,000
2)Vaule of like kind property: 162,000
3)Total of 1 & 2: 270,000
4)Basis of property given up: 107,500
5)Realized gain: 162,500
6)Smaller of 1 or 5 is
recognized gain: 108,000
7)Deferred gain 5-6: 54,500
8)Basis of prop. recev'd: 107,500

20% of 108,000 is 21,600 in taxes.

Did I make a mistake? If yes, is there anything I can do to "manage" this disaster? This is for my 2002 taxes which I yet have not submitted (extention). Thanks for your help

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