There are a couple of ways to handle the depreciation after the 1031 exchange. Here is a great article explaining the options along with pros and cons.
The program prefers the simplest method - which would be for you to eliminate the HVAC and main structure to depreciate only the new property. The cost basis of the new property = cost of new property - deferred gain from original property. In your case, HVAC deferred gain will also be subtracted from the new property.
For example:
- Buy building A, original cost $250,000, depreciated $150,000, sold $400,000
- if sold, A would have gain of $300,000 but instead did a 1031 exchange.
- Buy building B for $500,000.
- Cost basis for new property B is $500,000 - prop A gain $300,000 = $200,000
The adjusted basis of building A is the exchange basis.
Excess basis = cost basis for new property - adjusted basis of building A
For example:
- Building A adjusted basis is $250,000 -dep $150,000 = $100,000 = exchange basis
- Building B $500,000 purchase price
- Excess basis = purchase -exchange
- Excess = $500,000 - $100,000 = $400,000 excess basis
The adjusted cost basis is the purchase price minus the deferred gain from the property sold.
From my example above:
Cost basis for new property B is $500,000 - prop A gain $300,000 = $200,000
See also:
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
