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Jon Andrews
Jon Andrews, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 3118
Experience:  I deal with all levels of tax planning and controversy - from the ordinary to the complex.
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If I sold an investment property under a 1031 tax exchange

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If I sold an investment property under a 1031 tax exchange and purchased two additonal properities with the proceeds how do I allocated the capital gains and what is the basis in the new properities for depreciation.

If the 1031 was properly executed and the full amount of the sales price was invested in replacement property, the deferred gain amount would be allocated, primarily, based on the relative values of the two properties. For example, if the gain deferred was $30,000 and one property cost $100,000 and the other cost $200,000, then $10,000 of the gain would be allocated to property 1 and $20,000 to property 2.


The basis of the two new properties is equal to your basis in the sold property plus any additional amount you had to pay. This is an oversimplification but very close to the actual computatin. If your basis in the sold property was $200,000 and you had to pay $50,000 in addition to the sales proceeds for the replacement property, your basis in the new property would be $250,000 no matter what its actual dollar cost was.



Customer: replied 7 years ago.
For example, I sold an investment property and had a gain of $150,000. with proceeds of $210,000. I did a 1031 exchange and purchased two more investment (rental houses). The first house cost 130,000 and I paid cash. The second house cost $200,000 and I paid $80,000 down and took a loan for the remaining balance. What is my basis in each property and what do I use for depreciation?
Did you use a qualified intermediary? Was there any debt on the sold property (prior to the sale)?
Customer: replied 7 years ago.
Yes I did use an intermediary and had no access to the cash and the prior property was paid for.

Based on that, your basis in the first property is $37,143 (130,000/210,000*60,000). Your basis in the second property is $102,857 (80,000/210,000*60,000 + 80,000).


This is based on your basis in the sold property being 60,000 as indicated by proceeds of $210,000 and gain of $150,000.



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Customer: replied 7 years ago.
What is the source of your information?

Form 8824