1031 exchange - partially depreciated assets

[thompsam]

I did a 1031 exchange this year and am trying to figure out how to handle partially deprciated assets that are associated with the sold property.  Here I’m talking about something like an HVAC system etc that was purchased in  2017 and thus has been partially depreciated. 

In the depreciation dialog, TT asks "Did you stop using this asset in 2020?”  Since the aseet was sold/taken out of service for any other reason, I think I should answer “yes”.  A couple screens later I’m asked for the “sales price” and the expenses assocatied with the sale.   Since the HVAC unit was not sold separately from the property, I enter “$0”  for both sales price and expenses and TurboTax computes a loss amount and a depreciation amount for the HVAC. 

Am I doing this correctly? Should I consider the HVAC unit as NOT "sold/taken out of service" since the property that it was a part of was sold in a 1031 and just continue to depreciate it in future years till it is fully depreciated?  

[Anonymous_]

If you elected to continue the depreciation schedule on the relinquished property, then you should do the same for the HVAC unit.

See https://www.fool.com/millionacres/taxes/depreciation/depreciation-after-1031-exchange-how-it-works/

[thompsam]

Thank you, this was very helpful.  If I chose to use "Option 2: Treat the replacement property as a new asset", since it would simplify things in future tax years, how should I handle my HVAC system's entry in TT for the 2020 tax year?  Do I just continue to depreciate the HVAC system's cost as though it were part of the new asset or do I need to mark it as taken out of use in 2020 on the day the relinquished property was sold?

[Anonymous_]

If you're treating the replacement property as a new asset, then you should do likewise with the HVAC (i.e., add that to the basis).