The steps above reference software that is not TurboTax, but rather other software platforms (Lacerte, ProConnect or ProSeries).
You can leave the refi fees as part of the exchange, and yes you should flag it as you did the rental asset. It doesn't change the deduction that continues on for the property received, it changes any 'buy up' amount added to your depreciation assets.
The easiest process, since the original property continues on for depreciation and cost basis as though it was the same property is as follows.
Continue the depreciation as though there was no trade. Then with any extra cash that was paid for the replacement property (the property received in the exchange) you set up a new asset and begin depreciation in 2020 as residential rental property using 27.5 year recovery period (depreciation method).
If you buy up in your exchange (your New Property cost more than you sold your Old for), the answer is easy – you treat the additional cash part as you would a new addition to an existing property. In other words, you treat the amount of the buy-up the same as you would the cost of a capital improvement.
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