You depreciate property you received in a like kind exchange (Section 1031), as though you never gave up the original property. You use the same adjusted basis as the property given up. If you paid money in addition to the property given up then you would depreciate the additional cost over the same recovery period.
When you have improvements in the same year the property is traded in a Section 1031 exchange, add the capital improvements as an additional asset beginning on the date the new property was received. Include in that total cost of the new asset, any additional cash paid on the exchange, as well as any capital improvements on the property received.
Set up a new asset and begin depreciation in 2020 as residential rental property using 27.5 year recovery period (depreciation method).
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