1031X Assets for 1 relinquished property going to 2 replacement properties

[calderosa77]

I had a 1031X in 2024 with one relinquished property and two replacement properties.  I have used the % allocation for asset basis and depreciation based on the purchase price of the new properties.  I am having difficulties with transferring the assets from the relinquished property into replacement properties.  Problem:   the assets are being depreciated in 2024 in the relinquished property thru the date of the sale 6/20/24 plus a full year in the replacement properties because I have to keep the original place in service dates from the property that was relinquished.   

What am I doing incorrectly, or is this right?  Please help.

Another question: should I be entering the assets that are fully depreciated or just the ones with net book value?

FYI… I am treating the additional money “paid up” for the replacement properties as new assets (prorated, too) and began depreciating this one on the date we close on the purchase of the replacement properties.

[AmyC · Accepted solution]

1.Your depreciation method for the new property starts with when it was placed in service.

2. Fully depreciated assets have no basis and can be left off.

You may have exchanged a rental house for a commercial building with different timelines or you could have different methods.

• If you are using the single schedule method, you add the new property and depreciate it over its correct time frame.
• If you are using the two schedule depreciation, the old property continues to be depreciated on its schedule while the excess has its own schedule.

Turbo Tax only handles one method, the single schedule depreciation. It is simple, you take your new adjusted basis, begin depreciation fresh on the new property based on the type of property. You may want to see another post of mine with several properties involved.

Accruit blog states:

Single Schedule Depreciation

In choosing to pursue single schedule depreciation, the investor is opting out of the preferred tax code method and added benefits of two schedule depreciation in the interest of simplicity. Depreciating through this method is simple as you take the new adjusted cost basis of the asset, $228,000 in the example, and divide by 27.5 years (39 years if it’s a commercial property) to come up with the annual depreciation going forward.

Two Schedule Depreciation (also referred to as Step-in-the-Shoes Depreciation)

Two schedule or Step-in-the-Shoes depreciation is the tax code preferred method and has significant benefits to the investor if they can overcome the complexity. Any remaining depreciation from the relinquished property needs to continue on the original schedule through this method

Take a look at  1031 depreciating  and the Journal of Accountancy article here for other issues.

[calderosa77]

Thank you very much.  Your answer and links to 1031 exchange information was extremely helful!!!!