1031 In Kind like exchange of single family homes

[vince4ltci]

Made the 1031 exchange from CA to NV (not that matters).  TT shows a deferral of the $250,000 LT Capital Gain, but will "recapture" the previously taken straight-line depreciation of about $50,000.  I thought the entire amount was deferred into reduction of basis in the new property.  Is TT correct or have I just made an entry error?

[Anonymous_ · Accepted solution]

There could very well be an input error.

The fair market value of the replacement property typically needs to equal the same value for the relinquished property. In other words, if the fair market value of the replacement property is lower, then there will usually be gain/recapture that will be recognized.

[Critter-3]

Was this a sale of a personal residence  that you sold and purchased a new personal residence ?   If so you CANNOT use the 1031 exchange option for a personal residence.   So you can exclude up to $250K  from income however the depreciation taken while it was used for business at any time in the past must be recaptured first.  

[vince4ltci]

Thanks you response.  The replacement income property (single family home) was greater than the old.  There is a "boot" of $28,000, on which I expected to pay income taxes (or c/g).  But TT reads only get to defer the c/g of $250,000, not the SL depreciation of about $50,000.  I had thought both were deferred into a reduction of basis in the new exchange property.

[vince4ltci]

Thanks for response.  No, not personal.  Rental SF house--old and new.  The replacement income property (single family home) was greater than the old.  There is a "boot" of $28,000, on which I expected to pay income taxes (or c/g).  But TT reads only get to defer the c/g of $250,000, not the SL depreciation of about $50,000.  I had thought both were deferred into a reduction of basis in the new exchange property.

[Critter-3]

If this was an investment property and not a personal residence  then the depreciation of the old property is continued on the new property ... so you must be making a data entry error somewhere.  

[Mike9241]

was there a reduction in the mortgage debt between the new and old? that's taxable boot. 

[vince4ltci]

Thanks.  No mortgage on either property.