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Handling Tax Basis in a 1031 Exchange
While there is a lot of information on the topic, the essential nature of a 1031 exchange makes a question-answer session almost inevitable. For instance, many investors want to know more about the handling of basis in a 1031 exchange. Expert1031.com reports:
The first step in determining the basis on your New Property is the basis of your Old Property. Let’s take a simple example: Fred and Sue are selling their purple duplex. They bought it in 1995 for $40,000, and they’ve taken $15,000 of depreciation on the duplex since they bought it. Their tax basis in the duplex is $25,000 ($40,000 minus $15,000). They are selling it for $100,000 and have found a red condo to buy as their replacement property for their 1031 exchange. What is the basis in their red condo? And how is depreciation handled on the red condo?
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