1031 depreciation schedules for Improvements do they forward?
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Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes
7yI would be more concerned that you're using an impermissible method of depreciation.
What kind of improvements are depreciated over a 7-10 year life?
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- Investor · Pawleys Island, SC · Member since 2008 · 1k+ posts · 837 votes7y
Originally posted by @Susan O.:
Can anyone answer the question on whether the depreciation schedules forward to anew property on a1031 exch
Yes but it is not quite as straightforward as you might think. The depreciable basis still remaining in your old property becomes the depreciation basis for your new property. For example., if you had $50K of basis remaining in the old property and 12 years left on the depreciation schedule, that basis and the depreciation timeline becomes the initial basis in your new property. You would depreciate this OLD basis in your new property over the next12 years or until the depreciation basis is depleted. Any new money (whether cash or financing) brought to the 1031 to complete the acquisition is depreciated as NEW basis on a new depreciation schedule that starts when your proprety is placed in service. Your new accountant may also choose to allocate the new basis between the dwelling structure and land when determine the new depreciation basis for your 1031 replacement property.
- 7ySusan O.Fresno, CA · Member since 2015 · 552 posts · 181 votesOP
Originally posted by @Dave Toelkes:
Originally posted by @Susan O.:
Can anyone answer the question on whether the depreciation schedules forward to anew property on a1031 exch
Yes but it is not quite as straightforward as you might think. The depreciable basis still remaining in your old property becomes the depreciation basis for your new property. For example., if you had $50K of basis remaining in the old property and 12 years left on the depreciation schedule, that basis and the depreciation timeline becomes the initial basis in your new property. You would depreciate this OLD basis in your new property over the next12 years or until the depreciation basis is depleted. Any new money (whether cash or financing) brought to the 1031 to complete the acquisition is depreciated as NEW basis on a new depreciation schedule that starts when your proprety is placed in service. Your new accountant may also choose to allocate the new basis between the dwelling structure and land when determine the new depreciation basis for your 1031 replacement property.
Thanks I spoke to an accountant about this and it sounded the same. He said that he would take the new building cost of the new property and use that for a new depreciation basis for my new 1031 replacement property.
My old property was almost completely depleted of depreciation and only had 10 years left of the 27.5 years white the new property is worth a lot more especially in building value
- 7yAshish AcharyaBusiness MemberCPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
Originally posted by @Eamonn McElroy:
I see no issue S179ing 1245 property used in a residential real estate trade or business as long as it passes with flying colors the other provisions of Sec 179.
My source for this is the highest level of authoritative guidance: Internal Revenue Code Sec 179. Particularly subsection "d" and the last sentence in Sec 179(d)(1)(A):
Such term shall not include any property described in section 50(b) (other than paragraph (2) thereof).
It's likely Pub 527 hasn't been updated. Ironically, chapter 2 of Pub 946, which it references, certainly has.
"it may be that the IRS interprets lodging as hotel-type only"
They could take that position, but we first have to examine what is lodging as it pertains to Sec 179. IRC Sec 179 directly references IRC Sec 50(b)(2):
50(b)(2)Property Used for Lodging
No credit shall be determined under this subpart with respect to any property which is used predominantly to furnish lodging or in connection with the furnishing of lodging. The preceding sentence shall not apply to—
50(b)(2)(A)
Nonlodging commercial facilities which are available to persons not using the lodging facilities on the same basis as they are available to persons using the lodging facilities;
50(b)(2)(B)
Property used by a hotel or motel in connection with the trade or business of furnishing lodging where the predominant portion of the accommodations is used by transients;
50(b)(2)(C)
A certified historic structure to the extent of that portion of the basis which is attributable to qualified rehabilitation expenditures; and
50(b)(2)(D)
Any energy property.
I would take the position that hotel-like activity is a sub-set of lodging under Sec 50(b). Lodging is actually more broad and expansive. The Service could be difficult and say no to that. At that point, as decades of case law have prescribed, we should look to the common definition or usage of the word when there is question of legislative intent. Merriam-Webster:
Definition of lodging
1a : a place to live : DWELLING
b : LODGMENT sense 3b
2a(1) : sleeping accommodations
found lodging in the barn
(2) : a temporary place to stay
a lodging for the night
b : a room in the house of another used as a residence —usually used in plural
3 : the act of lodging
Note the first and most common definition. Again, I'm comfortable with S179 used on residential rental 1245 property.
True, TCJA allowed Sec 179 on the 1245 used in the residential rentals.
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