In a 1031 'partial' exchange of a rental property; where there is taxable boot (capital gain and depreciation recapture). Is the depreciation recapture amount required to be fully paid first and then the capital gain on the remaining boot? Or is the boot amount taxed as %cap gain and % depreciation recapture; and likewise the basis of the replacement property will be the same % cap gain and %depreciation taken(not recaptured yet)?
Hi @Paul Rolloff ,
Generally, the taxable boot is applied toward your depreciation recapture first and then once it has been fully recognized it is applied toward your capital gain and then a return of your cost basis last; the depreciation recapture, capital gain and cost basis are not prorated.
Thank you @Bill Exeter I have found out about depreciation recapture the hard way... and will going forward always expense what I can! How can I reduce depreciation recapture? ...in regards to rehab(major) and new appliances in the 1-2 months before the sale/1031x: Can the major rehab($70K) be stated as put in service on the day of the sale(as a depreciable asset) .... so I don't have to show depreciation (that then has to be immediately recaptured) on the sold property but will start on the replacement property? And what about new appliances can they be a cost of the sale? or sec 179 immediate expense to the rental sold ...so they don't have to be recaptured?