Continue the assets and depreciation as though there was no trade. Then with any extra cash that was paid for the replacement property (the property received in the exchange) you set up a new asset and begin depreciation in 2023 as residential rental property using 27.5 year recovery period (depreciation method) or 39 year recovery if it is nonresidential real property (not rental).
If you buy up in your exchange (your New Property cost more than you sold your Old for), the answer is easy – you treat the additional cash part as you would a new addition to an existing property. In other words, you treat the amount of the buy-up the same as you would the cost of a capital improvement. The date placed in service becomes the starting point for depreciation to begin on the buy up portion.
- Current Asset (now belongs to the property received in the exchange): $100,000 (building and land) -retains the same exact character, nothing changes including accumulated depreciation.
- New Asset (the buy up): $200,000 (improvements - land is already in the asset from the original property.
You can re-name the former property to the new name/location. Keep all of your returns that relate to this 1031 like kind exchange until you no longer hold any property that is connected to a previous property.
Notes:
Boot: Any property or money you might have received that is unlike property in the exchange would be immediately subject to capital gains tax.
Qualified Intermediary: The identification must be in writing, signed by you and delivered to a person involved in the exchange like the seller of the replacement property or the qualified intermediary. However, notice to your attorney, real estate agent, accountant or similar persons acting as your agent is not sufficient.
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