How to Calculate New Basis in a Partial 1031 Exchange with Cash Boot?

The calculation for your new basis is actually pretty straightforward once you understand the components. In a 1031 exchange, your new property essentially inherits the adjusted basis of your old property, with some adjustments. Your adjusted basis in the relinquished property was $95,000 ($325,000 original cost minus $230,000 depreciation). Since you took out $410,000 in cash boot, that's considered taxable, but it doesn't directly factor into your new basis calculation in the way you might think. Your new basis would be: Adjusted basis of relinquished property ($95,000) + Amount of additional investment ($1,025,000 - ($1,550,000 - $115,000 - $410,000)) - Gain not recognized. The formula gets complicated with partial exchanges, but essentially your new depreciable basis will be significantly higher than zero - it will be your old adjusted basis plus any additional investment you made. I recommend using IRS Form 8824 to walk through this calculation step by step, as it will help you determine the exact recognized gain and new basis.

After my third investment property exchange, I was just as confused about basis calculations until I found taxr.ai (https://taxr.ai). They analyzed my 1031 exchange documents and showed me exactly how to calculate my new basis with cash boot involved. It saved me from potentially making a major depreciation error. The site has specialists who understand partial 1031 exchanges and can explain how cash boot affects your basis calculation. They reviewed my settlement statements and prepared a detailed basis analysis that my accountant was able to use directly. Much clearer than trying to piece together information from random forum posts or general IRS publications.

I was super skeptical about using an online service for my complex 1031 exchange, but after struggling with exactly the same basis calculation issues, I tried taxr.ai anyway. I'm honestly shocked at how helpful it was. The analysis they provided clearly showed me that I was about to make a $70K error in my basis calculation by mishandling how the cash boot affected my new property's basis. Their specialist walked me through exactly how the boot received reduced my basis in the replacement property, but how recognized gain offset some of that reduction. They even provided a customized depreciation schedule I could use going forward. What would have taken me days of research (and probably still gotten wrong) was resolved in about 24 hours. Wish I'd known about this for my previous exchanges!

After three weeks of trying to get someone at the IRS to explain how to handle basis in my partial 1031 exchange, I was ready to give up. Then another investor told me about Claimyr (https://claimyr.com). They got me through to an actual IRS representative in under 15 minutes who specialized in investment property exchanges. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent walked me through the entire basis calculation for my situation and even emailed me the relevant sections from their internal guidance. Saved me hours of hold time and probably thousands in potential tax errors.

I have to eat my words about being skeptical. After posting here, I decided to try Claimyr because I was desperate for answers about my partial 1031 exchange basis calculation. Within 20 minutes, I was talking to an IRS specialist who directed me to a specific worksheet for partial exchanges with boot. The agent explained exactly how the cash boot I received would affect my basis in the replacement property and how much of my original basis would carry over. They even sent me a follow-up email with IRS publication references. I've been doing real estate investing for 12 years and this is the first time I've ever gotten through to the IRS without spending half a day on hold. Completely worth it for complex tax questions like 1031 basis calculations where getting it wrong could mean years of incorrect depreciation.

Something everyone seems to be missing about partial 1031 exchanges - the basis adjustment depends on whether the boot is mortgage boot or cash boot. If you received cash because you decreased your mortgage liability, that's treated differently than if you just took cash out of the proceeds. According to my accountant, with cash boot, your new basis is: Adjusted basis of relinquished property + Cash paid for replacement property + Gain recognized - Cash received.

Don't forget to consider state tax implications too! My exchange was fine for federal purposes but my state (CA) had different rules about how much gain I could defer. Ended up having to pay state tax on part of the exchange that was tax-deferred federally.

Based on your numbers, here's how your basis calculation should work: Your adjusted basis in the relinquished property was $95,000 ($325,000 - $230,000 depreciation). For the new property basis calculation: - Start with old adjusted basis: $95,000 - Add additional cash invested: $0 (since your net proceeds after boot exactly equaled your purchase price) - Add recognized gain: $410,000 (the cash boot you received) - Subtract boot received: $410,000 This gives you a new basis of approximately $95,000 in your replacement property. The key point is that in a 1031 exchange, you're essentially carrying over your low basis from the old property to the new one. The $410,000 boot you took will be taxed as capital gains, but it doesn't increase your depreciable basis in the new property. So yes, your depreciable basis will be much lower than the $1,025,000 you paid - it will be close to your original adjusted basis of $95,000. This means you'll have less depreciation deductions going forward, but you've already benefited from $230,000 in depreciation on the original property. Make sure to file Form 8824 with your tax return to properly report this exchange!