Sold SFR w/depreciable asset - only 6 of 27 yrs in....

[Daria B.]

Hi,

I recently ( yesterday :-} ) sold my rental unit (doing a 1031x). 

I owned the unit for many years and the units depreciation itself was already nearing the end of the depreciation. However, the flooring was just into the beginning stages of depreciation.

In 2019 I did some rehabbing and replaced all flooring with waterproof LVP throughout having paid about $3586 for materials and installation. I'm only into year 6 of the depreciations.

Have I just lost the remaining deprecation years for the flooring? 

Or can I take what would be remaining and expense it?

What, if any, does that have to do with the replacement property considering it will beginning it's own depreciation cycle? (I'm thinking it has nothing to do with the replacement property.)

Attached is a snippet of the flooring depreciation totals from my tax return. I'm only $602 into the $3586 of cost.

Cheers and thanks in advance!

[Benjamin Weinhart]

Hi Daria,

Assuming you did a 1031 exchange, the flooring, as well as the rest of the property is depreciated normally (a little nuance, talk with a CPA for specifics). Nothing lost or needing to expense the remainder. The replacement property doesn't really get depreciated under the 1031 exchange.

[Dave Foster]

@Daria B., You're handling your 1031 like a champ!!  If your accountant will let you expense it that would give you more benefit if the short term.  If they won't you can still add it to your depreciable basis.  You just need to let your accountant know so they can add it to your basis.  Then it will carry forward in the 1031 as they file your form 8824.

[Daria B.]

Quote from @Dave Foster:

@Daria B., You're handling your 1031 like a champ!!  If your accountant will let you expense it that would give you more benefit if the short term.  If they won't you can still add it to your depreciable basis.  You just need to let your accountant know so they can add it to your basis.  Then it will carry forward in the 1031 as they file your form 8824.

Sweet! Thanks Dave. I had not thought of the interior decreciable assets until now to gather for my CPA.

I have to say the 1st part went well considering the issue with the buyers lender and the property insurance. Now for the 2nd part of securing a replacement. You and your team and the title company have been great and I appreciate getting the feedback I have received from all of you.

[Daria B.]

Quote from @Benjamin Weinhart:

Hi Daria,

Assuming you did a 1031 exchange, the flooring, as well as the rest of the property is depreciated normally (a little nuance, talk with a CPA for specifics). Nothing lost or needing to expense the remainder. 

The replacement property doesn't really get depreciated under the 1031 exchange.

Hi Benjamin,

I'm hanging on your last sentence. Can you elaborate and give me some context to understand what you mean?

Thanks D

[Benjamin Weinhart]

Quote from @Daria B.:

Quote from @Benjamin Weinhart:

Hi Daria,

Assuming you did a 1031 exchange, the flooring, as well as the rest of the property is depreciated normally (a little nuance, talk with a CPA for specifics). Nothing lost or needing to expense the remainder. 

The replacement property doesn't really get depreciated under the 1031 exchange.

Hi Benjamin,

I'm hanging on your last sentence. Can you elaborate and give me some context to understand what you mean?

Thanks D

 Effectively, if you use a 1031 exchange, think of it similar to the replacement property doesn't exist for tax purposes and you kept the old one. Of course this is a large simplification but a useful one.

[Basit Siddiqi]

It will roll into the new basis of your replacement property.

[Michael Plaks]

@Daria B.

You're not "losing" depreciation on anything. And I'm not sure why you single out your flooring because the concept applies across the board.

In your particular example, you spent $3,500 on flooring, and $500 has been depreciated. The remaining $3,000 rolls into your replacement property and continues to be depreciated. This is the same exact result as if you did not sell it.

This is assuming that you're buying depreciable property as a replacement and not, for example, undeveloped land. But these are technicalities, and you still do not "lose" anything.

PS. My buddy @Dave Foster made a strange comment "If your accountant will let you expense it that would give you more benefit if the short term." No, we do not have the freedom to do so. We also have them rules, just like y'all.

[Dave Foster]

@Michael Plaks, I thought you were king!!  BTW I see what you did - talking about flooring, "across the board"!!!  A pun that's a... "step above"!

[Daria B.]

Quote from @Michael Plaks:

@Daria B.

You're not "losing" depreciation on anything. And I'm not sure why you single out your flooring because the concept applies across the board.

In your particular example, you spent $3,500 on flooring, and $500 has been depreciated. The remaining $3,000 rolls into your replacement property and continues to be depreciated. This is the same exact result as if you did not sell it.

This is assuming that you're buying depreciable property as a replacement and not, for example, undeveloped land. But these are technicalities, and you still do not "lose" anything.

PS. My buddy @Dave Foster made a strange comment "If your accountant will let you expense it that would give you more benefit if the short term." No, we do not have the freedom to do so. We also have them rules, just like y'all.

Replacement will be another SFR that will be the amount of the exchange if not more (out of pocket cash to fill that buffer). The relinquished property was in another state than what the replacement property will be.

I only included the flooring because it's a simple example. I am aware of the other depreciation such as the sold unit itself and any other depreciable assets.

I used the flooring as an example to keep it simple as providing too much information for a simple question tends to get too far off the answer. ;-)