What is an example of a 1031 exchange?

Example: A property was sold in a Sec. 1031 exchange for $1 million. There was $700,000 of depreciation leftover at the time of the exchange (aka "carryover basis"). The new property that is received in the Sec. 1031 exchange is purchased for $1,500,000. Only the excess basis of $500,000 ($1,500,000 – $1,000,000) is eligible for bonus depreciation.

What is the tax basis for a 1031 exchange?

A short example is buying a property for $100,000. In order to acquire that property, you had to pay $5,000 in closing costs to the bank and an attorney. Thus, your tax basis is $105,000. Calculating Cost Basis in 1031 Exchange? 1031 exchanges allow taxpayers to defer capital gains. In deferring those gains, your basis has to be recalculated.

How do I add property to a 1031 exchange?

Subtract any money or property you received in the exchange, the amount of the mortgage on the sold property, and any recognized loss on any property sold in the exchange. These steps result in the basis of your newly acquired property in the 1031 exchange.