1031 exchange for depreciation on new and old property

Forum|Forum|2 years ago
February 26, 2024
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How to calculate the new depreciation value for the new property? For example, I bought a property at $100K, depreciated $50K, sold it for $200K, bought another property at $250K as 1031 exchange. Will the new depreciation value be the remaining depreciation value of $50K from the old property, plus the $50K I just paid out of pocket, total $100K? Or should I add the profit $100K from selling the old property into it, the total new depreciation value is $200K? Thank you very much!

Not A Product Question

Best answer by PaulaM

No, I think Mike9241 and I are in agreement. He's saying (I believe) that new basis is $150k less the $50k ('with accumulated depreciation') = $100k. Another way to think of it is in terms of the amount of gain you are deferring.

Your capital gain is the Sales Price of old property - adjusted basis = $150k deferred gain in your case. Purchase price of new property - deferred gain = Adjusted Basis of new property.

For the exchange expenses, follow the prompts in the program to enter. The end result on Form 8824 is that deferred gain is reduced by those expenses.

Mike9241

mortgage old vs new can also affect basis because a decrease in mortgage balance is treated like sales proceeds.

what about exchange expenses they affect the basis of the replacement property. you did use a qualified intermediary, didn't you? 1031 exchanges are reported on form 8824

also remember that your depreciable basis is net of the depreciation you took on the original property. I do not know if TurboTax tracks this so you must. even though you did a like-kind exchange that previous depreciation does not go away and is subject to recapture upon the sale of the replacement property where there is no like-kind exchange involved. It is more like the cost of the property is 150 with 50 of accumulated depreciation to start

59stationAuthor

Yes, I used a 1031 exchange company to handle the transaction. And there are some closing costs too. Should I roll the closing costs into the new purchase price for the depreciation value? The property was bought in cash, no mortgage. So the total depreciation value for the new property is $200K without considering the closing costs? And I should add the closing costs into this $200K?

PaulaM

Employee

Just using the figures you listed above and very rough estimate, your basis in the new property is going to be the basis of the old property + any additional money you bring to the table for the new property. In your case, the difference in the purchase price of new property minus the sales price of the old property + the adjusted basis of the old.

The calculation is more detailed than that as Mike9241 indicated above if you have liabilities and costs associated with sale/purchase. I suggest working it in TurboTax or the many 1031 exchange calculators on the web to gain an understanding of the flow. You can get started in TurboTax with this link.

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59stationAuthor

Thank you, Paula. So what you are saying is that the depreciation value for the new property is $100K? That's different than the value as Mike said, if I understand correctly.

PaulaMAnswer

Employee

Your capital gain is the Sales Price of old property - adjusted basis = $150k deferred gain in your case. Purchase price of new property - deferred gain = Adjusted Basis of new property.

For the exchange expenses, follow the prompts in the program to enter. The end result on Form 8824 is that deferred gain is reduced by those expenses.

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"

Mike9241

Yes your basis is 100K. I was merely trying to point out that the depreciation on the original property doesn't disappear. Should the replacement property be sold at a gain the depreciation on both the original and replacement property are subject to recapture. The issue is I don't think Turbotax tracks the original depreciation. So that's something you'll have to do and take e into account if the property is sold in a fully taxable transaction.