The information below may be useful and it can be applied to your property like kind exchanges with a little more calculations.
Below is an example to assist you.
If you receive cash, relief from debt, or property that is not like-kind, you may trigger some taxable gain in the year of the exchange. There can be both deferred and recognized gain in the same transaction when a taxpayer exchanges for like-kind property of lesser value. Also, you indicated you had to 'buy up'. Any buy up will be an additional and new asset. You can divide it appropriately for each rental.
Here are some notes and steps that may make the process easier for you to complete your 1031 exchange.
- You should indicate it was rented all year just like you never gave it up when entering the original property basis in each new property.
The new property is treated like it was the old property, in other words nothing changes except that you may have a new asset to place in service (add as a new asset) for any buy up/added cash on the exchange. Below are instructions that should help you complete the process and/or review your own steps.
Example to arrive at asset cost basis for each new property:
In an example you have a total purchase value of the two properties received of $1,000,000 ($575,100 + $425,000) or when dividing each by the total you have the following percentages for the two properties received:
- Rental 1 = 58%
- Rental 2 = 42%
- You can use these percentages on the remaining basis for building and land on the original basis of the property traded to enter as an asset for each of these properties (use the original date placed in service).
- Likewise for your new asset (any money, debt or other property given up in addition to your property traded) use these percentages to arrive at the cost basis for a new asset placed in service on the day of the exchange.
Next you will complete the like kind exchange, Form 8824 (Section 1031 exchange):
- Use the Search (upper right) > Type like kind > Press enter > Click on the Jump to... link
- Select the checkbox beside 'Any additional like-kind exchanges (section 1031)' > Continue
- Complete the information for the 'Real estate given up' and 'Like-Kind Property Given Up' > Continue
- Name the event > Continue > Complete the information for the 'Like-kind property received'
- If you did not give unlike property in the exchange click 'No' and continue past these screens, if 'Yes' answer the questions.
- Enter any exchange expenses (sales expenses) > Continue to see your deferred gain.
Depreciation Rules:
The basic concept of a 1031 exchange is that the basis of your Old Property rolls over to your New Property. In other words, if you sold your Old Property for $100,000, and bought your New Property for the same, your basis on the New Property would be the same. It makes sense then that your depreciation schedule would be exactly the same, and does not change! In other words, you continue your depreciation calculations as if you still own the Old Property (your acquisition date, cost, previous depreciation taken, and remaining un-depreciated basis remain the same).
Buy Up:
If you 'buy up' in your exchange (your New Property cost more than you sold your Old Property), the answer is easy – you treat the buy up 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 construction, for example, of a garage added to an existing house – the cost is the amount of the buy-up; the date you start depreciating it is the date you purchased the new property; and the depreciation method you use is the method most appropriate for that type of property in the year you bought the New Property (regardless of the method you used for the original house). If you think of it this way, then it's easy, even if your property is a large office building or a more complex purchase.
@GHILLC2018
[Edited: 04/15/2025 | 12:51 PM PST]
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