Do you factor in depreciation in a 1031 exchange?

However, what many people don’t factor in is depreciation. Depreciation is a term that refers to the tax benefit that allows you to recover the cost of a property over a predetermined period of time. Depreciation recapture is a significant factor in participating in a like-kind exchange in order to take advantage of the 1031 tax benefit.

What is depreciation recapture in a 1031 exchange?

Depreciation is a term that refers to the tax benefit that allows you to recover the cost of a property over a predetermined period of time. Depreciation recapture is a significant factor in participating in a like-kind exchange in order to take advantage of the 1031 tax benefit. So, what happens to depreciation in a 1031 exchange?

How much tax should I pay on a 1031 exchange?

Adding federal capital gains tax (15%), California capital gains tax (13.3%), and depreciation recapture (25%), your tax liability would be $52,525! However, with a 1031 exchange, you could defer this hefty tax bill by acquiring a replacement property of equal or greater value.