If/when you sell the property in the future, you are required to recapture and pay taxes on depreciation in the tax year of the sale. Even if you don't depreciate the property, you are still required to recapture the depreciation you *should* have taken, and pay taxes on it in the tax year of the sale. Two things about that:
1) Recaptured depreciation is added to your AGI in the tax year of the sale. So it has the potential to bump you into the next higher tax bracket. Weather it does or not, just depends on the numbers.
2) Recaptured depreciation is taxed as ordinary income anywhere from 0% to a maximum of 25%. Again, it just depends on the numbers.
As for a 1031 exchange, I really can't provide any useful information on that, as I'm not well versed with 1031 exchanges at all. I'll leave that for someone else to address.
