adjusted basis for 1031 exchange

[terimac4]

I am completing the info on our rental property exchange. It is asking for the "adjusted basis" of the property sold. Everything has been depreciated because this house was bought for $94K in 1990. The land value doesn't seem to be depreciated (parent's purchase and my father passed away). If I put in the cost of the property and add/subtract the structure depreciation, that leaves $48K for the adjusted basis. This seems to create an issue on the next page that wants to know about different property received. I already put in the info on the new property under "like kind Property received", so the only thing that should go in this last section is the gain they made ($14K in cash) that I noted. The problem is it says based on my answers I need to show $51K. I am thinking for adjusted basis of the sold property I need to indicate zero? Since the land and property are sold together?

[DianeW777]

Yes, there is no cost basis for the house since it was fully depreciated before the trade. The land is an appreciable asset and never changes. 

If there was any 'buy up' in the exchange, then there would be a new asset.  I think the details below will help you with the numbers.

Depreciation Rules:

The basic concept of a 1031 exchange is that the basis of your Old Property rolls over to your New Property. In other words, if you sold your Old Property for $100,000, and bought your New Property for the same, your basis on the New Property would be the same. It makes sense then that your depreciation schedule would be exactly the same, and does not change! In other words, you continue your depreciation calculations as if you still own the Old Property (your acquisition date, cost, previous depreciation taken, and remaining un-depreciated basis remain the same).

Buy Up: 

If you 'buy up' in your exchange (your New Property cost more than you sold your Old Property), the answer is easy – you treat the buy up 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 construction, for example, of a garage added to an existing house – the cost is the amount of the buy-up; the date you start depreciating it is the date you purchased the new property; and the depreciation method you use is the method most appropriate for that type of property in the year you bought the New Property (regardless of the method you used for the original house). If you think of it this way, then it's easy, even if your property is a large office building or a more complex purchase.

Boot: Any property or money you might have received that is unlike property in the exchange would be immediately subject to capital gains tax. 

• Where do you enter a like-kind  or Section 1031 exchange?
• IRS Fact Sheet for Section 1031 Exchange
• IRS Instructions for Form 8824

Please update if you have additional details and we will help.

[terimac4]

I am somewhat confused because I spoke with live help and they told me to enter the value of the land since it wasn' depreciated, even though that didn't sound right.

Old prop: sold for $386, 500 (originally purchased in 1990 for $94,000 and I don't have the original depreciation schedule from back then, but the structure value that I think they used to depreciate was $45, 623

We also got a check for excess funds after all commissions were paid of 14K

New Property: bought for $343,000