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Someting is not tracking with your question. Can you give me a bit more information?
Are you selling a property in a like kind exchange?
Is this a rental property?
I just need to know more about your circumstances.
Thank you for hte additional information.
That article and its references are correctd and accurate information. While the information at that site is dated 2005, it is still valid today.
According to IRS Publicaiton 544, you do not pay the recapture at this time, as lolng as your like kiknd exchange is a true exchange.....meaning,, the acquired or exchang property is equal to or greater in price (value) to the old (exchanged) property.
There are other qualifiers for this to be completely tax free (tax deferred actually) exhange.
Depending on the relatilonal charachter of the two properties includiing use, they may not be treated the same.
ALSO, if part of the value of the exchange property was section 1235 property, because the section 1235 portion of the new propery is not the same class, then the value the exchange would reduced, and you might still have to pay recapture on depreciation.
Recapture mahy still apply in your situation:
From the IRS frequently asked questions.
Recapture in 1031 Exchange. In §1031 exchange, , to the extent that there is gain to be recognized. then the 25% depreciation rate is applied to 1250 depreciation,.
They are talking about EXCESS depreciation, where accumulated depreciation exceeds the straight line method.
This is a tax trap, that you and other tax payers are rarely aware of.
The IRS rules indicate that there is normally no loss of gain on the exchange of lke kiknd properties if they meet the entire rules, even if you pay money. lHence there would not no loss carryover. The cost basis of the new property becomes the cost basis fo the old pluse hte orignal cost of the new properyt plus amoney paid.
So everyting is factored in.
What I would do in your situation, is ask the CPA to do a cost allocation study on the property, to make sure you are not paying recapture on things other than excess depreciation, and to reduce any recapture tax. you may benefit from that.
Here is a summary:
1. If any of the exchange inclouded an asset class not considered like kind, then there would be a gain, and the property may not qualify for a tax-less exchange, there for requireing depreciation recapture.
2. Even if it is otherwise a taxless exchange, you have to pay recapture on any excess dedprecation than it would have been under straignt line depreciation.
3. If you bought down on the exchange, that is the new property was less value, this will not be a tax-less exchange,and you will have to pay recapture tax on the current year tax return.
4. If you bougth up or at equal value, then you would in most instances be a taxless exchange and not have to incur a recapture tax at this time.
I have no idea why your CPA is saying you can not take depreciation on the acquired property.
The idea is that the cost basis of the old home is rolled over to the new home, so you continue depreication as if you still owed the old home. With the exception of paying recapture on excess depreciation, yiou continue to deprecdiate the old property as if you still owned it, AND you treat the new property as if it were an addtion to the old, depreciating its value. You seperately track the deprecaiton, for each as you will need to segregate the recapture tax when you dispose of the exchange property.
Agaiin the exception is if it is a trade down.
Ed has asked me to respond to your questions.
Before I proceed, could you provide some additional information.
1. Fair Market Value of the property given up.
2. Fair Market Value of the property received.
3. Any debt assumed by either party.
4. Any cash paid or received.
5. Cost and improvements of property given up.
6. Depreciation taken on property given up.
Exact numbers aren't necessary, just ballpark amounts so that I can fully understand your situation.
I'll be happy to help when you're ready.
Is there a breakout of the 1245 property on either the sale or purchase. If so, please provide details of allocation (1 & 2) and the allocation of basis (5 & 6) between 1250 and 1245.
What I'm trying to find out is what is the amount of 1245 in the property received (#2) the FMV property given (#1) and in the basis (#5) and in the accumulated depreciation (#6).
The terms of Section 1031 require that you exchange property for like kind property. Thus the Section 1031 applies separately to the exchange of real estate for real estate and personal property for personal property.
From what I can see, there would be no depreciation to take on the real property because you have exchanged on an almost dollar for dollar basis. You would only have depreciation if the Fair Market Value of real estate you acquired was more than the Fair Market Value of the property given up. In that case you would had had to either add cash to the transaction or take out a mortgage. Even in that case, only the excess would be depreciable.
You have fully depreciated the real property. The total cost was $685,125 and the depreciation taken was $585,125 the $100,000 difference would normally be the land which is not depreciable.
If your exchange included segregation of the 1245 property from the real property and the value placed on the 1245 property was $96,676 then your accountant is correct.
In reality if the cost of the 1245 property was $96,676, in all likelihood its current fair market value is something less than that. That value is what would need to be recaptured at the time of the transaction.
In theory there is also some section 1245 property included with the real estate you acquired. If this is the case you may also be able to defer the income on that portion of the transaction too. This is similar to when you trade in a car used for business, you continue to defer the gain/loss until ultimately sell the vehicle.
No problem. I'm doing some traveling this weekend also.
I've returned from my trip.
What additional questions did you have.