If you believe you made some kind of error when you made the 1031 exchange, or when you prepared your 2017 tax return, then that would require further details. Please provide clarification here. If that is not the case, see the information below.
There is no change in the basis of assets. The first property carries over as though you never exchanged it. At the point of sale, you will report the full gain you should because the depreciation just continued on from the first property. The section 1031 transaction allowed at least some deferral of gain at the time of the exchange, which is the intent. This is the time you will pay tax on the full gain.
- 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.
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