Depreciation Basis for Condo Bought With Vacant Land 1031

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Depreciation Basis for Condo Bought With Vacant Land 1031

John Haelig
Member since 2019 · 3 posts · 3 votes

We purchased vacant land in the 1970's for $70,000.  Sold it in 2018 for $720,000 and 1031 exchanged for 3 condos now used as rentals.

Since the sold property was vacant and never depreciated - what is the cost basis and depreciation schedule for the new condos?

Should it be as in a new purchase i.e. dwelling deprecated over 27.5 years?

Or - some formula based on the vacant land purchase & sale prices?

What is entailed in "opting out" using IRS Form 4562?  Would that come into play here?  

My only understanding of that is from a memo I found on line written by Realty Exchange Corporation. 

Many, MANY thanks

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Steven Hamilton IIPro Member
Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
6y

I would put a second recommendation on working with someone. A 1031 calculation is not a DIY thing. 

[email protected]224-381-2660
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  • Natalie KolodijBusiness Member
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    Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
    6y

    I would strongly suggest utilizing a tax pro to report this 1031 especially since the sale allocates into 3 new assets. 

    Your carryover  basis in the condos is going to be the $70,000 split between the 3 new assets. 

    So assuming they're all identical $23,333 each apx 

    THEN if the condo has some value allocated to land say 15% 

    You need to reduce that $23k by 15% because land value won't be depreciable.

    Your depreciable basis in the condos could be higher if there was debt assumed as well. 

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  • Steven Hamilton IIPro Member
    Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
    6y

    I would put a second recommendation on working with someone. A 1031 calculation is not a DIY thing. 

    [email protected]224-381-2660
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  • John Haelig
    OP
    Member since 2019 · 3 posts · 3 votes
    6y

    Thank you both -  My tax preparer has not inspired great confidence, so when he said exactly what you outlined I was skeptical.  I also asked him to have an actual conversation with our 1031 intermediary rather than emails subject to assumptions and misinterpretations.

    If I can't get the free lunch, at least I can minimize and defer!

    John

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  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    6y

    @John Haelig

    Filing a tax return with a 1031 exchange is complicated and not something to be done by yourself or an accountant who is not familiar with 1031 exchanges.

    I would ask your accountant how often he deals with clients who have done 1031's.

    If he is not giving you confidence still, you may want to consider reaching to a new accountant.

    [email protected]917-280-8544
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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    6y

    Yeah, as said....it’s your basis from the old property, $70k, plus whatever additional cash or mtg you took to cover the purchase ($70k plus whatever amount the price for the three condos was above $720k, less selling costs).

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