Don't Forget About Recaptured Depreciation In Your Next 1031 Exchange

Savvy investors understand that a 1031 exchange is one of the fastest ways to grow a real estate investment portfolio. Avoiding capital gains tax offers the advantage of immediately reinvesting money that would otherwise go to the IRS.

Sounds great, right? Unfortunately, there is one special rule that catches investors off guard when they are planning their exchange – recaptured depreciation.

Special rules apply when depreciable property is involved in an exchange. The general rule is that if you exchange like-kind depreciable assets (one building for another building or one piece of equipment for another piece of equipment), depreciation recapture can be avoided. However, if your exchange involves trading improved land with a building for unimproved, empty land then any depreciation you claimed on the building will be recaptured and taxed to you as ordinary income.

When considering your next 1031 exchange, it is important to calculate any recaptured depreciation into the equation.

To find out how we can help you find and close on your next 1031 exchange property or to learn more about the exchange process and our qualified intermediary services, please visit our website.