Basis of New Property in 1031 Exchange

[Bilshaw1]

I purchased a residential rental property in 1981 for $72,000 and took depreciation.   In 2004 I sold the property for $172,000 and purchased another residential for $172,000 within 45 days of the sale of the old property.   The basis of the old property was $23,000.   How do I calculate the basis of the new property?   I know the $23,000 carries forward.   Since the selling price of the old property was $172,000 and the purchase price of the new property was $172,000, is there zero "buy-up" to increase the basis?   Or does the difference between new property purchase price and the old basis represent "buy-up" ($172,000-$23,000=$149,000 buy up) providing a new basis of $172,000 ($23,000 old basis plus $149,000 new basis)?   Using desk top TurboTax for Form 8824 it says my new basis is $23,000 but other TurboTax discussions say the new price represents a $149,000 buy-up in basis.

[Hi Palms]

Your basis in the repalcement property is $23,000 and you have deferred gain of $149,000.

[Bilshaw1]

Maybe I'm getting confused but I just read some information about the 'January 2000 IRS Notice 2000-4' and it talks about the residual basis on the old property being called 'the exchange basis' and the difference of the new property basis minus the old basis as being called 'the excess basis'.  It says the exchange basis should continue to be depreciated under the original depreciation schedule and the excess basis would be depreciated under a new schedule, although there may be an option to combine the under the new schedule.  I'm not a tax person so this is making my head hurt. 

[Hi Palms]

You would have that "extra asset" to depreciate IF you paid MORE for the replacement property than the FMV of the relinquished property. As it is, your basis for future depreication is $23,000.

[Hi Palms]

Another way to put it is, the basis of the replacement property is the adjusted basis of the relinquished property and if you invest additional cash in the exchange, the basis of the replacement property will increase.

[Bilshaw1]

I like that answer because that is the way that I actually handled it back in 2004.   That seems to be the way TurboTax is set up.  The part that was confusing was where some references define 'excess basis' as the new purchase price minus the carryover basis, not the new purchase price minus the FMV of the old property.  

[Mike9241]

irc  sec 1031 basis of property

If property was acquired on an exchange described in this section....., then the basis shall be the same as that of the property exchanged, decreased in the amount of any money received by the taxpayer and increased in the amount of gain or decreased in the amount of loss to the taxpayer that was recognized on such exchange.

another way to look at this is it's the basis of the new like-kind property, reduced by the gain deferred. 

[Bilshaw1]

Your reply gets back to the confusing part: 

According to IRC Sec 1031 "...the basis shall be the same as that of the property exchanged, decreased in the amount of any money received by the taxpayer and increased in the amount of gain .... to the taxpayer that was recognized on such exchange.

Basis of property exchanged:        $23,000

Cash received:                                   $0

Amount of gain from sale:             $149,000      

New basis (??)                                   $172,000

But your last statement seems to contradict this by saying the new basis is the basis of the new property reduced by the gain.   Back to square one.  

[Hi Palms]

But your last statement seems to contradict this by saying the new basis is the basis of the new property reduced by the gain.   Back to square one.  

OK, but nope. Your basis of the new property in that regard is affected by the amount of gain recognized and you recognized no gain on this transaction.

Sec 1031(d): ....increased in the amount of gain or decreased in the amount of loss to the taxpayer that was recognized on such exchange.....

[Bilshaw1]

Ok, that explains it.  Thanks.