Does rental property depreciation on a 1031 Like Kind Exchange carry over from the old, exchanged property to the newly acquired property?

Forum|Forum|7 years ago
June 6, 2019
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It is clear that a gain on the old property reduces the basis of the new property. When looking at Form 8824, does Line 25 which refers to the adjusted cost basis of the new property take into consideration the depreciation on the old property?

Thanks for your help!

TurboTax Business Windows

Best answer by DavidD66

Yes As you said, the deferred gain reduces the basis of the new property, and that gain is in part determined by the accumulated depreciation. The accumulated depreciation must be carried over to the new property. If the new property is then sold (not exchanged) that depreciation will be subject to depreciation recapture (to the extent their is a gain on the sale).

DavidD66Answer

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crownefenn5Author

Level 2

Thanks for this clarification. I will actually be selling the home in 2019 for a loss (ouch!) versus the adjusted cost basis after the Exchange, some years back. I have a lot of depreciation accumulated from the exchanged property and quite a bit from the "received" rental. From your final comment, I suspect that TT will calculate the entire amount of depreciation, from both properties, against the lowered adjusted cost basis, thus creating a paper gain, despite loosing money on the upcoming sale on the "received" property ? Just checking to see if I understand the final accounting on this albatross! Thanks again.