Get your taxes done using TurboTax

Your questions are answered below and assumes you traded one property for one property. As far as state is concerned the net rental profit will be divided between each state where the property was located (property 1 and property 2). Look for questions about the income for each state return.

1. Start in the rental activity for each asset. Use the instructions below.
2. If you follow the instructions below you will leave the assets in tact with simply changing the name and address of the property (simplest).
3. For any 'buy-up' this would be considered a new asset set up just like the original rental with a date placed in service of 2024 (first year of depreciation). 
4. Again, follow the steps to number 5 below assuming you choose to change the name of the asset only (do not mark as sold, traded, etc.
5. It seems most states do agree with the federal Section 1031 exchange, in which case there is nothing to report until the final property is actually sold. Double check the rules for your states.

When you have your TurboTax return open you can use the following steps to update the original assets for the exchange.

1. First use the Search (upper right) > Type rentals > Press enter > Click on the Jump to... link
2. Or Income > Rental Properties and Royalties > Update > Continue to Rental and Royalty Summary > Edit the property
3. Scroll to Assets/Depreciation  > Click Update > Select 'Edit' next to each asset
4. Edit beside each asset > Continue to the Tell Us About This Rental Asset
5. Select the checkbox beside 'This item was sold, retired, .... traded in ....etc. > enter the date it was traded (sold/retired)
   • You can choose not to select this and just change the name of the assets given up in the trade to identify them with the new property. The depreciation for the year will not change on these assets.
6. Answer the question about whether it was 100% business > Leave the original date it was placed in service (may be purchase date or later depending on your circumstances)
7. Continue to the screen 'Confirm Your Prior Depreciation'  
   • The amount displayed is only for prior years and does not include the current year. 
   • Continue until you see the current year amount displayed and make a note to add the two amounts together for the Section 1031 like kind exchange.
   • This completes the asset portion of the exchange.
8. Answer 'Yes' to Special Handling. 

Depreciation Rules:

The basic concept of a 1031 exchange is that the basis of your Old Property rolls over to your New Property. In other words, if you sold your Old Property for $100,000, and bought your New Property for the same, your basis on the New Property would be the same. It makes sense then that your depreciation schedule would be exactly the same, and does not change! In other words, you continue your depreciation calculations as if you still own the Old Property (your acquisition date, cost, previous depreciation taken, and remaining un-depreciated basis remain the same).