@DianeW777
@AmyC
I have read through many posting on this topic.
Below is my scenario:
Relinquished Property Details (HI)
• Purchase Date: 12/01/2009
• Land Value: $50,000 (Non-depreciable)
• Building Value: $450,000 (Depreciable)
• Total Purchase Price: $500,000
• Depreciation Taken: $20,000 (Residential, 27.5-year schedule)
• Sale Date: 08/01/2024
• Sale Price: $1,000,000
• Selling Costs:
o Settlement Costs: $5,000
o Attorney Fee: $50,000
o Qualified Intermediary (QI) Fee: $1,000
• Loan Paid Off: $250,000
Replacement Property Details (MD)
• Purchase Date: 12/01/2024
• Land Value: $105,000 (Non-depreciable, 10%)
• Building Value (Depreciable): $945,000
• Total Purchase Price: $1,050,000
• Loan Assumed: $300,000
• Commercial Property Depreciation Schedule: 39 years
Step 1: Relinquished Property Calculations
A) Adjusted Basis
Since land is not depreciable, the adjusted basis is calculated only for the building portion:
• Adjusted Basis = Building Value - Depreciation Taken + Land Value
• Adjusted Basis = 450,000 - 20,000 + 50,000 = 480,000
B) Net Sale Proceeds
Net Sale Proceeds = Sale Price - Selling Costs
• Net Sale Proceeds = 1,000,000 - (5,000 + 50,000 + 1,000) = 944,000.
C) Realized Gain
• Realized Gain = Net Sale Proceeds - Adjusted Basis
• Realized Gain = 944,000 - 480,000 = 464,000
D) Deferred Gain
Since all proceeds were reinvested: Deferred Gain = 464,000
Step 2: Replacement Property Basis
A) Carryover Basis
The carryover basis equals the adjusted basis of the relinquished property:
• Carryover Basis = 480,000
B) Excess Basis
Excess basis represents new investment beyond the deferred gain and carryover basis:
• Excess Basis = Replacement Purchase Price - Carryover Basis + Deferred Gain
• Excess Basis = 1,050,000 - (480,000 + 464,000) = 106,000
C) Total Basis
• Total Basis = 480,000 + 464,000 + 106,000 = 1,050,000
Step 3: Depreciation Calculations
A) Carryover Basis Depreciation
• Original Annual Depreciation:
450,000/27.5} = 16,363.64
• Time Used:
20,000/16,363.64 = 1.22 years
• Remaining Life:
27.5 - 1.22 = 26.28 years
• Annual Depreciation:
430,000/26.28 = 16,368.76
B) Deferred Gain Depreciation
• Schedule: Commercial, 39 years
• Annual Depreciation:
464,000/39 = 11,897.44
C) Excess Basis Depreciation
• Schedule: Commercial, 39 years
• Annual Depreciation:
106,000/39} = 2,717.95
D) Total Annual Depreciation
• Total Annual Depreciation} = 16,368.76 + 11,897.44 + 2,717.95 = 30,984.15
Step 4: Loan Impact
Loan Paid Off ($250,000 on Relinquished Property):
• Paying off the loan does not affect basis or depreciation.
• It simply reduces the cash available for reinvestment.
Replacement Property Loan Assumed ($300,000):
• Loan assumption reduces cash you need to contribute but does not change the basis calculation.
• Basis is determined solely by carryover basis, deferred gain, and excess basis.
Question related to depreciation:
Q1) Since I don't have schedule E for many years for the relinquished property HI, should I amend 2023 to create HI schedule E?
Q2) Is the calculation correct in my scenario?
Q3) Where does the land cost for the HI property and MD property come into the picture?
Q4) Do I just create a new MD schedule E (replacement property)? In the MD schedule E create 2 assets;
- HI carryover asset 1- put in the exact HI schedule E with the 27.5 year. Carryover basis and the time span left.
- MD asset 2 - combine the Deferred basis and the Excess basis to one. Use 39 year depreciation.
Q5) How and where does the land portion from the HI asset (50k) and the MD asset (105k) come in the picture?
