it means you choose to OPT OUT the IRS 2 schedule depreciation and choose 1 to treat replacement as new.
Opt in:
you continue depreciation on relinquished for its remaining yrs with its adj'd basis (rollover basis)
you start a new depreciation (27.5 y for residential) and its basis is the additional money needed to complete the purchase.
Opt Out
e.g, calculated new basis (rollover + new) is on new depreciation schedule, for 27.5 yrs, if residential.
benefit of opt in is more depreciation annually and IRS like it. but you need to keep good book...as most roll 1031 from one into another.... opt out, less annual but it is significantly less complicated. also the actual depreciable is only on improvement, not land.
you may want to add an additional statement in TT filing and let them know you chose the election and it is noted on form 4562 of replacement(s).
