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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.
To be clear, you continue the depreciation as though there was no trade. Then with any extra cash that was paid for the replacement property (the property received in the exchange) you set up a new asset and begin depreciation in 2020 as residential rental property using 27.5 year recovery period (depreciation method).
If you buy up in your exchange (your New Property cost more than you sold your Old for), the answer is easy – you treat the additional cash 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 a capital improvement.
