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The taxpayer election that I was talking about regarding starting a new depreciation schedule rather than continuing the old one is provided for under Treas. Reg. section 1.168(i)-6(i) and exercised by attaching a statement to Form 4562 (Depreciation and Amortization) for the tax year that the replacement property is purchased. The regulations permit the taxpayer to elect out of the final rules and treat the entire replacement property as a new asset. This is briefly discussed in the instructions of IRS Form 4562, Depreciation and Amortization, in Part III, Section B (bottom of the left column on page 8 in the 2023 edition).  I haven't figured out yet how to attach such a statement in tax software such as TurboTax when e-filing, but if I can't find it I will just mail the return in paper form.

I think you're confusing "boot" with "buy-up" in your post.  They are opposite things.  "Boot" is taking cash or something else not like-kind out of the sale of the relinquished property, while "Buy-Up" is adding additional cash or mortgage indebtedness when purchasing the relinquished property.  In my case, I took no boot but I did add buy-up.

That said, I absolutely appreciate your response!  Over the past few days, I think I have resolved on my own some of the questions that I posed when I made the original post. However, I would like to go over my understandings here, as I might not be entirely right.

My post was mostly about how to depreciate after acquiring the new property, how should the deferred gain and any buy-in be properly apportioned in the new adjusted basis between building and land.  Let's try an example:

Old (relinquished) Property:

- Adjusted basis was $98,000 ($88,000 building and $10,000 land).

- Deferred gain was $52,000 (net proceeds of sale are $150,000).

New (replacement) Property:

- Purchase price $176,000

- Buy-in of $26,000 added (adjusted basis becomes $124,000)

- Replacement property is comprised of $160,000 building and $16,000 land

We necessarily bought the new property using a mix of remaining cost basis, deferred gain (which includes a certain amount subject to depreciation recapture in the future), and new money. 

1) Following the final rules and continuing all the old depreciation like nothing happened. The sum of the deferred gain and new money has to be properly allocated between building and land. We can't just say the first $6,000 of our buy-in funds went towards buying the new land, or new building, because some of the deferred gain of the transaction also went towards purchasing both the new building and land! The proper allocation may be found by first determining that the ratio of Deferred Gain to Buy-In, which in the example is 2:1 ($52,000 : $26,000), and then we apply that proportion to the $6,000 in new land actually purchased as $4,000 (2/3) paid from Deferred Gain and $2,000 (1/3) from Buy-In. As a result, from our total $26,000 of new cash/mortgage, we add $24,000 to building basis and $2,000 to land basis. The remainder was funded by the deferred gain, and that never goes into the cost basis! The new adjusted basis of $124,000 is therefore composed of $112,000 building and $12,000 land.  Just the new $24,000 is depreciated on a new schedule beginning on the date the replacement property is placed in service (the $2,000 towards land is non-depreciable).  Does that make sense?

(another approach to the building-land apportionment that I'm also considering is that since the $16,000 of land is 9.09% of the purchase price of $176,000, so land should only occupy 9.09% of the new adjusted basis and 9.09% of the deferred gain. In that case, $124,000 * 9.09% = $11,273 land allocated to cost basis, which means only $1,273 of the buy-in is allocated to land, with remainder of the buy-in added to building and depreciating. This is even better, but I am not sure if this reasoning is more correct!)

2) If we elect out of the final rules, then we treat the relinquished property as disposed on the date of its sale, and we begin new depreciation schedule on the entire new adjusted basis with a "placed in service date" on the date we acquired the replacement property. However, we still have deferred gain also funding the new purchase to deal with too. In this scenario, we also have to keep a permanent record of the accumulated depreciation when the old, relinquished property was sold, because while it was treated a disposed, no taxes were paid and that amount still needs to be recaptured one day even though it is no longer in our depreciation schedules. The same analysis for apportioning new basis between gain and buy-in still occurs, and the cost basis at acquisition is still $124,000 composed of $112,000 building and $12,000 land. However the depreciation of the old property's adjusted basis and the buy-in basis are instead combined into a new, single depreciation schedule which runs for the full life of the new asset. Obviously, since the old property's remaining basis will now depreciate for longer, the annual depreciation amount is going to be lower.

For QBI limit calculations, one of the tests calls for the unadjusted basis of the business's assets. After a 1031 like-kind exchange, that basically means to me that we take the new adjusted basis of building only and add back in all the accumulated depreciation.  Or just sum up all the original costs for building.  We do not include the basis of land, because land is not qualified property for the purpose of QBI.  We also do not include that portion of building cost that was funded by deferred gain, because that amount is not in the basis.  Sounds right?

For state tax returns in which prior bonus depreciation was not allowed by the state, it is simpler to just follow the final rules and continue the state depreciation as it did in the past. If you elect out instead, you can still handle this, but it is necessary to reduce the prior bonus depreciation by the amount of that has been already depreciated under state rules, and then declare this new amount on the new depreciation schedule as the bonus depreciation instead, and add the same amount also to the adjusted basis.  For the federal depreciation, this will have no net effect, as we just immediately subtract the remaining bonus depreciation off the equally higher adjusted basis (net change, 0) so the remaining depreciating basis will be the same as before. For the state return the adjusted basis will rightfully be higher as needed for computing the higher annual state depreciation expense deduction.

My reason for electing out of the final rules is I already had 12 running depreciation schedules on the old, relinquished property from various capital improvements over the years the I had it, including some that caused 50% and 100% bonus depreciation under the PATH Act and later TCJA.  Furthermore, I replaced one property with 15 properties in 8 states! As a result, I will need to enter 12*15 = 180 running depreciation schedules in order to follow the final rules! I also intend to keep doing Like-Kind Exchanges for as long as they remain allowed. For these reasons, I may prefer to take the hit of losing a few thousand dollars per year in annual depreciation expense deduction, for the benefits of slowing the decline in my adjusted basis and keeping depreciation expense amount more steady and going on for as long as possible.