In 2016 I did a 1031 exchange and I'm trying to figure out the depreciation for the replacement property.
This is the information I found when doing some research:
http://www.1031.us/PDF/Depreciationof1031.pdf
Let’s say our taxpayer purchased a rental property ten years ago for $500,000. While repairs were made, no depreciable improvements were made to the property. The taxpayer took $150,000 in depreciation over the ten year period. The adjusted basis for the relinquished property is now $350,000. If the relinquished property is sold for $1 million and the taxpayer has selling and exchange expenses of $80,000, the taxpayer’s realized gain would be $1 million less the adjusted basis of $350,000 and less exchange expenses of $80,000, for $570,000 of realized gain. If the taxpayer meets the 1031 reinvestment requirements and purchases replacement property of say $1.2 million, the total new basis for the replacement property received would be $630,000. This total new basis is computed by taking the $1.2 million cost of the new property and subtracting the $570,000 of gain deferred in the exchange. When an exchange is completed, an IRS Form 8824 is filed with the IRS along with your tax return for the year the relinquished property was transferred. The new total replacement property basis will be shown on Line 25 of the form and is labeled “Basis of like-kind property received.”
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Here is the basic information for my exchange:
The relinquished property was sold for $300,000
Purchase price for replacement property: $515,000
Old property depreciated by: $30,343
Selling and exchange expenses:$24,854
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Using the above values we do the calculation
Adjusted basis for old property: $204,460 - $30,343 = $174,117
The realized gain is $300,000 - $172,117 - $24,854 = $101,029
The total new basis for the replacement property received would be the cost of the new property subtracting the gain deferred in the exchange.
Total new basis: $515,000 - $101,029 = $413,971
This is what I come up with when I simply plug in the numbers in the example.
Is this correct or what am I missing?
(My CPA is saying that the deferred gain is $318,029 and that the basis of the new property is $196,971. This makes no sense to me. How could the deferred gain be more than what the original property in the exchange was sold for?)
