How does a 1031 Exchange affect my property's Tax Basis? Confused about basis calculation

The tax basis calculation in a 1031 exchange is actually pretty straightforward once you understand the core concept: the basis essentially transfers from the old property to the new one, with some adjustments. In your uncle's case, the starting point is the adjusted basis of the relinquished property (the San Diego one). That would be the original $420,000 purchase price, plus the $65,000 in capital improvements, minus any depreciation he's taken over those 12 years of ownership. Then, to calculate the basis in the new Phoenix property, you take that adjusted basis from the old property, add any additional cash invested (the $1.2M purchase price minus the $875K from the sale), and subtract any "boot" received (cash or other non-like-kind property received in the exchange). The key thing to understand is that a properly executed 1031 exchange defers recognition of gain - it doesn't eliminate it. The lower basis in the new property essentially "stores" the deferred gain until a future taxable disposition.

I was completely lost on calculating basis after my 1031 exchange last year. The whole process was giving me a headache until I found this amazing tool at https://taxr.ai that analyzed all my exchange documents and calculated my new basis automatically. My situation was similar - sold a property in Chicago and bought in Nashville. The tool identified that I needed to track my original basis plus improvements, subtract all depreciation taken, and then add the additional cash invested in the new property. It even helped me properly allocate between land and building for the new depreciation schedule. What's cool is it keeps a record of your basis calculation for future reference too.

Just wanted to update everyone - I followed the advice about https://taxr.ai and it was incredibly helpful for my mom's 1031 exchange basis calculation! The document analyzer was able to extract all the key information from her partial records and even helped us reconstruct the depreciation schedule from the original property purchased 20+ years ago. What really impressed me was how it walked us through allocating the carried-over basis to the new property and explained exactly how to handle the boot she received (she took some cash out during the exchange). The depreciation calculations for the new property are all set up correctly now. Definitely relieved we got this figured out before tax filing - would have been a nightmare to amend later if we calculated the basis incorrectly!

After spending 5+ hours trying to reach someone at the IRS about my 1031 exchange basis questions, I finally used https://claimyr.com and got through to a real IRS agent in about 15 minutes! You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I had a specific question about how to handle the fact that my exchanged properties were in different states with different depreciation rules. The IRS agent was able to clarify that federal tax basis rules for 1031 exchanges supersede state-specific depreciation methods, which solved my main confusion. They also sent me to the right section of Publication 544 that explains the basis calculation steps in detail.

I have to admit I was completely wrong about Claimyr. After yet another day of getting nowhere with the IRS myself, I finally tried the service at https://claimyr.com that was mentioned earlier in this thread. Within about 20 minutes, I was talking to an actual IRS representative who specializes in property transactions. The agent walked me through exactly how to calculate my new basis after a 1031 exchange, including how to handle the mortgage boot since my new property had a larger loan than my relinquished property. I've been trying to get this answered for months! For anyone struggling with 1031 basis calculations, I'd also recommend IRS Publication 544 - the agent pointed me to page 11 which has a specific example that was almost identical to my situation.

Anyone have experience with 1031 exchanges where the replacement property is worth less than the relinquished property? My basis calculation seems different in that scenario.

I'm in the middle of a 1031 exchange myself and my qualified intermediary mentioned something about "basis adjustments" but didn't really explain it well. Can someone explain this in simple terms?

This is such a helpful thread! I'm actually dealing with a similar situation right now. My grandmother is doing a 1031 exchange and we've been struggling with the basis calculation too. One thing I learned from our tax preparer is that you absolutely need to keep detailed records of ALL the depreciation you've claimed over the years on the relinquished property. This seems obvious now, but we almost missed some depreciation from years 3-5 when she had a different accountant who handled it differently. Also, make sure you're working with a qualified intermediary who understands the basis implications - ours has been great at explaining how the timing of the exchange affects the calculation. The 45-day identification period and 180-day completion deadline are crucial, but they also impact how you calculate and report the basis transfer. @Anastasia Popov - for your uncle's situation, definitely make sure you have documentation of that $65k in improvements. The IRS will want receipts if they ever audit the basis calculation!

This thread has been incredibly helpful! I'm actually a tax preparer and see a lot of confusion around 1031 basis calculations with my clients. One thing I'd add that hasn't been mentioned yet is the importance of understanding how state depreciation recapture rules can complicate things, especially when exchanging between different states. For example, some states don't conform to federal depreciation methods, so you might have different basis adjustments at the state level. This becomes particularly tricky when your relinquished and replacement properties are in different states - you'll need to track both federal and state basis separately. Also, @Anastasia Popov, since your uncle's San Diego property was held for 12 years, make sure to account for any bonus depreciation or Section 179 deductions that might have been claimed in addition to regular MACRS depreciation. These can significantly impact the adjusted basis calculation and are often overlooked. One last tip - if the numbers get too complex, Form 8824 (Like-Kind Exchanges) has a built-in worksheet that walks you through the basis calculation step by step. It's actually quite helpful for ensuring you don't miss any adjustments.

As someone who just went through a 1031 exchange myself last year, I can definitely relate to the confusion around basis calculations! One thing that really helped me was creating a simple spreadsheet to track all the components: Column 1: Original purchase price of relinquished property Column 2: Capital improvements (with dates and receipts) Column 3: Total depreciation claimed (year by year) Column 4: Adjusted basis of relinquished property (Col 1 + Col 2 - Col 3) Column 5: Sale price of relinquished property Column 6: Purchase price of replacement property Column 7: Additional cash invested (Col 6 - Col 5, if positive) Column 8: Boot received (Col 5 - Col 6, if positive) Your uncle's new basis would essentially be his adjusted basis from the San Diego property ($420K + $65K improvements - 12 years of depreciation) plus the additional $325K he invested in the Phoenix property. The key thing I learned is that you're basically "carrying forward" the tax consequences from the old property to the new one. The IRS gets their depreciation recapture and capital gains eventually - the 1031 exchange just delays it until you sell the replacement property in a taxable transaction. Make sure to keep all this documentation organized because you'll need it when your uncle eventually disposes of the Phoenix property!