Call for a simple equation for new Basis in 1031 Exchange?

Question

How to Calculate new Property Basis in 1031 Exchange

Define terms:

Property sold

P1 = Original Purchase price of property exchanged

TDP1 = Total Improved Property = P1 – LV1

LV1 = land value when purchased

TD1 = total depreciation taken  (so TDP1/27.5 per year for SFH)

G1 = Net Sale gain = P2 - P1

D1 = Debt paid off in sale

B1 = Basis of property sold = TDP1-TD1+LV1

=====================================

Property bought in 1031 Exchange w/o boot

Deferred Gain  = G1

Deferred Depreciation Recapture = 0.25*TD1

======================================

1031 Requirements:  P2 ≥ G1 & D2 ≥ D1

======================================

P2 = Purchase price of property bought

TDP2 = Total Improved Property bought

LV2 = land value of property purchased

D2 = Debt assumed in new purchase

B2 = Calculated Basis of property purchased = ??

Please define new variables if needed.

Help somebody!!

Eddie L. · Answer

***Not a CPA and no filing tax return experience for others***Specific to this example: Basis of the property acquired (B2) = Basis of the property transferred (B1) + Additional Consideration Given (In this case if property transferred was sold for P1 and that was the same amount used to purchase the property acquired then there was no additional consideration given)

B2 = B1

https://www.law.cornell.edu/cf...If, in an exchange of property solely of the type described in section 1031, section 1035(a), section 1036(a), or section 1037(a), no part of the gain or loss was recognized under the law applicable to the year in which the exchange was made, the basis of the property acquired is the same as the basis of the property transferred by the taxpayer with proper adjustments to the date of the exchange. If additional consideration is given by the taxpayer in the exchange, the basis of the property acquired shall be the same as the property transferred increased by the amount of additional consideration given (see section 1016 and the regulations thereunder).

Eddie L. · Answer

The presentation here has some errors as well. For example, where is P2 ≥ G1 from? P2 should be ≥ the value of the property transferred not the deferred gain of the property transferred. If you sold the property for $1M then the replacement property should be $1M or more. It's probably better to list out a few specific examples like one with no boot no debt, one with boot no debt, one boot yes debt, figure the formula for each of them then list out the if scenarios to apply a formula to each or possibly have one combined formula if that's your end goal.

https://www.biggerpockets.com/...

Buddy Holmes · Answer

Thanks @Eddie L.

Let me start anew and incorporate both replies.

How to Calculate new Property Basis in 1031 Exchange

Define terms:

Property sold  (assume purchased w/o any 1031 Exchange)

P1 = Original Purchase price of property exchanged

TDP1 = Total Improved Property = P1 – LV1

DPY1 = depreciation to be taken per year (so TDP1/27.5  -- for SFH)

LV1 = land value when purchased

TD1 = total depreciation taken = DPY1* X

Where X = years of depreciation taken

S1 = Net Sale = cash to QI

G1 = Net gain to be deferred = S1 – B1

D1 = Debt paid off in sale

B1 = Basis of property sold = TDP1-TD1+LV1

=====================================

Property bought in 1031 Exchange w/o boot

Deferred Gain = G1

Deferred Depreciation Recapture = 0.25*TD1

======================================

1031 Requirements: P2 ≥ S1 & D2 ≥ D1

======================================

P2 = Purchase price of property bought

AC2 = Additional Consideration = P2 – S1

TDP2 = Total Improved Property bought

LV2 = land value of property purchased

D2 = Debt assumed in new purchase

B2 = Calculated Basis of property purchased

So just:

B2 = B1 + AC2

And

DPY2 = DPY1 for the next Y years

Where Y = 27.5-X  (for a SFH)        Is this correct??

Please define new variables if needed.

Thanks for the review so far and welcome the help of anybody!!

Buddy Holmes · Answer

I see your point and my error. I will correct the list and and post again with all advice I receive here.  I'm just an anal engineer, and would like to try to make one universal equation.  Cheers, Buddy

Call for a simple equation for new Basis in 1031 Exchange?

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