1031 & Depreciation

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]