Exchanges and Excess Depreciation
I was reading an old BP article posted by Jeff Brown regarding the use of excess depreciation and how it could be used in replacement of 1031 exchanges: http://www.biggerpockets.com/renewsblog/2010/01/05/150k-year-excellent-strategy/ In it, Jeff mentioned something that I was hoping someone could elaborate on, as I think it is a critical point. He said:
One of the unintended consequences of exchanges, is the significant reduction of annual depreciation vs the same property acquired through ‘normal’ purchase.
I have two questions:
1. Why exactly does this significantly reduce your annual depreciation?
2. In the event you have excess depreciation, is there ever a time you HAVE to use it to offset capital gains, or can you use it to offset capital gains whenever you choose?