Yes, the 1031 exchanges begin with the original lot purchased in 2021. With each trade there is deferred gain and the cost basis begins with and continues with the original cost basis, then is increased by any additional buy up charges.
- Lot 1: $100,000 - Cost Basis (Tax deferred gain of $100,000 from sale)
- Lot 2: $140,000 - Cost Basis ($100,000 paid for the first lot plus $40,000 buy up additional funds)
- Lots 1-3: $130,000 - Cost Basis for all three lots ($140,000/2 lots = $70,000 + $60,000 buy up additional funds | $190,000 deferred gain ($260,000 - $$70,000)
IRS Fact Sheet-1031 Exchange
Form 8824 Instructions
If you receive cash, relief from debt, or property that is not like-kind, however, you may trigger some taxable gain in the year of the exchange. There can be both deferred and recognized gain in the same transaction when a taxpayer exchanges for like-kind property of lesser value.
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