Bonus Depreciation for a 1031 replacement property

[Stephen Gregory]

Hey guys,

Can you apply bonus depreciation for a replacement property placed in service April 2019?

So quick background, the relinquished property was bought in 2016. We held onto it for a few years a did a like kind exchange (bought up), into a newer, larger, more expensive property. To my surprise, my CPA is telling me that I cannot apply bonus depreciation for the replacement property bought in April 2019 because my basis in the property is still the same as the relinquished property. When I told him that the values were't the same (new property double in price), he said it didn't matter and I'm stuck with depreciating the same basis as the old property. He said that's the down side with 1031...you save by deferring taxes but you can't depreciate new property!

Do you think he's right or should I find a new CPA???

[Michael Plaks]

@Stephen Gregory

The answer is more complicated than we can cover in an online post.

There're two, not one, tax bases after a 1031 exchange. One is indeed the carryover of the old basis. The other is an additional basis acquired in the exchange - IF you did acquire additional basis.

Parts of the new basis might be eligible for bonus depreciation, but it's a big "depends." Too many technical details here.