Replacement properties basis 1031 exchange

[Lee Dan Art]

I sold my condo for $400K (realtor fee 20K) that I purchased for $260K, took depreciation 30K. I did a 1031 exchange for 2 replacement properties, with sales price 170K and 200K single family homes. Can someone breakdown what my basis will be for the 2 replacement properties?

[Jared Smith]

You will take your sales price $400-$20k fees = $380k. Unless you find some more fees to reduce that to $370 you will be exposed to tax on the $10k difference so just a couple thousand there.

The extra $30k of depreciation will get rationed out based on the purchase prices of your two properties. Rough math is 46% (~$14k) goes to the $170k property, 54% (-$16k) goes to the $200k property. 

Now that you have those numbers, you will take the total value of the homes, subtract the assessed land value (land doesn't depreciate), then subtract the applicable extra depreciation that we calculated above. Each of your homes will start at a lower cost basis and you will get slightly less depreciation each year to offset but you have spread that depreciation over multiple properties so now selling any one property will result in less impact on taxes than just selling your first without a 1031. 

Hope that helped and if I made any errors, the comments will reveal.