Basis For Like-Kind Exchange Property

Unless you paid "boot" to complete this transaction, you don't seem to have a basis in the new property. This is one of the disadvantages of 1031 exchanges. You transfer the basis of the old property to the new one. Only if you have to contribute more ("boot") to the transaction do you get to increase the basis. Here, you old property had been fully depreciated and your basis was $-0-. Transfer this to the new property, and your basis is still $-0-. FMV has no bearing on the allowable depreciation. Lanny K. Williams, CPA Nawarat, Williams & Co., Ltd. Income Tax Services for Expatriate Americans

The building was fully depreciated, but the land wasn't. So there's basis in the new property. Is that considered all in the land, or can some of it be depreciated (and if so, how much)? Seth

It's all in the land, and land has no depreciable basis.

There might be a different when trading a rental house for a rental condo - is that considered like-kind? If so, condominiums generally are considered to have little or no non- depreciable land basis. Stu

I'll admit I hadn't considered the land value -- a problem that comes from shooting from the hip, so to speak. However, this was an exchange of real property. Exchanges of personal property, such as a business, are considered to be a series of individual exchanges and you must look at the composition of the exchange package. However, real estate is not treated this way, i.e. you exchange one unit of real property for another unit. I interpret this to mean that the basis of all items in the exchange is taken as a whole and must be apportioned to the newly acquired assets. I've never seen this issue addressed and have always treated my client's exchanges this way. So, you are right, there would be some basis allocated to the new buildings, etc. and that would be depreciated. Lanny K. Williams, CPA Nawarat, Williams & Co., Ltd. Income Tax Services for Expatriate Americans

This sounds like a 1033 involuntary conversion not a 1031 like kind exchange. Note the reference to Hurricane Wilma. I am confused by the term "casualty loss". Have you already claimed a loss on your return? How much did you receive from the insurance company? What were the steps taken to accomplish transaction? It looks like we are missing facts.

-- Drew Edmundson, CPA Cary, NC

Thanks to all who responded. The casualty loss was claimed on 2005 return and represented loss after insurance reimbursement. Kirk

How did you have a casualty loss? The loss is typically limited to the lower of basis or the decrease in fair market value. Although I will freely admit that Congress made a lot of changes specific to Katrina that I have not had to deal with. So then did you exchange the damaged/destroyed rental property for a new property? If so it seems you would have probably had to add some cash to the deal (who would want a damaged townhouse?), how much? I really think you need to sit down with a professional who has all your facts, including your 2005 return.

-- Drew Edmundson, CPA Cary, NC