1031 & Depreciation

When doing a 1 into 2 1031 exchange, are there specific guidelines for moving the existing depreciation forward? If so, what are they?

Thanks - Jim

[ Edited by jimandlacy on Date 11/20/2006 ]

Comments(7)

  • ctsee1120th November, 2006

    see
    http://www.instantinc.us/pdf%20files/1031%20Flowchart%20&%20Worksheet.pdf
    for 1031 worksheet

  • edmeyer20th November, 2006

    Jim,

    I may have your answer. With one replacement property the gain from your relinquished property is subtracted from the basis of the replacement property so that relinquished gain is "tacked on" in any future gain calculations of the replacement property.

    In the case of multiple replacement properties the gain is allocated to the replacement properties in proportion to the FMV of the replacement properties.
    For each replacement property this is calculated by calculating the fraction ( FMV for property X)/(sum of FMVs for all replacement properties). The reduction in basis for property X is this fraction multiplied by the FMV for property X.

    Example:

    You have a gain of $100k on your relinquished property and you acquire three replacement properties. To simplify I will assume that the FMV equals the basis.

    Property A FMV = Basis = $250k
    Property B FMV = Basis = $300k
    Property C FMV = Basis = $450k
    Sum of FMV = $1000k = 1M

    Property A basis reduction = 100*(250/1000) = $25k
    Property B basis reduction = 100*(300/1000) = $30k
    Property C basis reduction = 100*(450/1000) = $45k

    The new bases after the exchange are

    Property A basis = $250k - $25k = $225k
    Property B basis = $300k - $30k = $270k
    Property C basis = $450k - $45k = $405k

    I am pretty confident that this is correct or close to it. Bill Exeter if he sees your post will give a definitive answer. I hope this helps.

    Regards,
    Ed



    [ Edited by edmeyer on Date 11/20/2006 ]

  • ctsee1121st November, 2006

    Try splitting your first property in half, fill out the worksheets for the properties you are exchanging, and that should give you a pretty good idea of the new basis.

  • jimandlacy21st November, 2006

    Thanks Ed... makes sense.
    I hope Bill chimes in also.
    Ctsee, thanks for trying.
    Jim

  • wexeter22nd November, 2006

    Ed is right on the money. The 1031 exchange defers your cost basis, capital gains and depreciation recapture amounts. These would all be allocated on a prorata basis based on the fair market value of each of the respective replacement properties as outlined by Ed.
    [addsig]

  • jimandlacy22nd November, 2006

    Thanks Bill,
    Your input is always appreciated.
    Jim

  • wexeter25th November, 2006

    You are most welcome! I hope you all had a great Thanksgiving. Personally, I have to be rolled everywhere I go now - ate entirely too much!
    [addsig]

Add Comment

Login To Comment