Disclaimer: I'm just a TurboTax user, not a tax professional. Please correct me if I said anything wrong.
First, I'm glad to report I found how to file the two-schedule depreciation (as well as how to elect out of it). Follow the instructions in https://proconnect.intuit.com/community/help-articles/help/1040-completing-a-like-kind-exchange-of-b... (it's pretty hard to find!).
Once you've input the numbers for the exchanged basis as an asset in the "Asset Entry Worksheet", double check the "Asset Life History". It should show a shortened depreciation schedule as the early years of the depreciation has already happened when you held the relinquished property. On the other hand, the excess basis should have a full 27.5-year depreciation schedule spanning 29 years.
Second, why is the two-schedule depreciation better than the simpler alternative? Because it's more accelerated (due to the shortened schedule)! Moreover, my replacement property has a lower building cost (and higher land value) than the relinquished property. Doing the two-schedule depreciation allows me to continue depreciating the previous higher building cost. My excess basis, which isn't much, is all land value after adjustment. I still allocated $1 of it to the building cost so I have a 27.5-year depreciation schedule averaging $0 per year on record. If someone thinks this should be done differently, please let me know!
@Vic_R, when you say "adjusted basis", do you actually mean Line 25 (Basis of like-kind property received) on Form 8824? That is the "new basis" of your replacement property (and the sum of the exchanged basis and excess basis if you use the two-schedule depreciation). In your example, I don't think you can depreciate $140K. You can only depreciate the building portion (with a reasonable way to allocate it, e.g. 78%) of the $42K new basis. That's the way I understand the depreciation rules. Is this not consistent with what you read?
