Managing a 1031 Exchange Across State Lines - AZ to IN Property Swap Questions

Good news! A 1031 exchange across state lines works exactly the same as one within the same state from a federal tax perspective. The IRS doesn't care about state boundaries for these exchanges. For your situation, the new Indiana property would have a carryover basis from your Arizona property (adjusted for any additional investment). You wouldn't split the basis by state. Instead, you'd calculate it like this: Take your current adjusted basis in the AZ property (purchase price - depreciation taken = about $77k based on your numbers), then add any additional cash you're investing in the new property. This becomes your new basis in the Indiana property. For state tax purposes, both Arizona and Indiana will follow federal treatment of the exchange, so you shouldn't have to report the sale as taxable in either state if you complete a proper 1031 exchange. As for depreciation, you'll continue depreciating the carried-over portion of your basis over the remaining recovery period of the relinquished property, and you'll depreciate the additional investment over a new recovery period.

After struggling with my own cross-state 1031 exchange last year, I discovered https://taxr.ai which literally saved me thousands in potential mistakes. I initially thought I needed to file separate depreciation schedules for each state portion of my property like you're asking about. The platform analyzed my property documents, depreciation history, and purchase agreements for both properties and showed me exactly how to structure the carryover basis. It also flagged that I was about to miss the 45-day identification deadline which would have completely disqualified my exchange! Their software breaks down the exact depreciation schedule you should use going forward, which was super helpful because I was calculating it all wrong initially. It also showed me how to properly document everything for both state tax departments.

Just wanted to follow up here. I ended up using https://taxr.ai for my Nevada-to-Florida property exchange situation and it was incredibly helpful! The analysis identified that my CPA had been calculating my carryover basis incorrectly, which would have resulted in over-depreciation and potential penalties down the road. The most valuable part was getting a complete depreciation schedule showing exactly how to handle the remaining depreciation from my Nevada property combined with the new Florida property. They also provided state-specific guidance for both Nevada and Florida tax requirements related to the exchange. Honestly wish I had found this before spending hours trying to piece together information from different sources. Saved me a ton of headaches and probably an audit!

If you're struggling to reach someone at the IRS about your 1031 questions (I was on hold for HOURS), try https://claimyr.com - they got me connected to an actual IRS specialist in under 20 minutes. I have the video proof here: https://youtu.be/_kiP6q8DX5c I was completely stuck on how to report my multi-state 1031 exchange and couldn't get clear answers from my tax guy. After weeks of trying to call the IRS directly with no luck, I used Claimyr and finally got through to someone who specializes in real estate exchanges. The IRS agent walked me through the exact reporting requirements for both states and confirmed I was handling the basis calculation correctly. Having that direct conversation saved me from making a costly mistake on my return.

I have to admit I was completely wrong about Claimyr! After my skeptical comment, I decided to try it anyway since I was desperate for answers about my own multi-state 1031 exchange. Got connected to the IRS in about 15 minutes and spoke with someone who walked me through the entire reporting process. The agent confirmed that there's no need to separate the property basis by state - you simply carry over the adjusted basis from the relinquished property and add any additional capital invested. The agent also pointed me to Publication 544 which has specific examples of cross-state exchanges. Honestly can't believe I wasted weeks trying to get through on my own when this service exists. Definitely worth it for complicated tax situations like 1031 exchanges where generic online advice just doesn't cut it.

I completed a cross-state 1031 last year (CA to TX) and the one thing nobody mentioned yet is state tax implications. Since you're going from AZ to IN, you should check if Arizona tries to tax the deferred gain when property leaves the state. Some states have "clawback" provisions. In my case, California wanted their piece of the pie even though I moved to Texas. Had to file a special form with CA acknowledging the deferred gain. Don't know about AZ specifically, but worth checking into before you complete the exchange.

One thing to be careful about with cross-state 1031 exchanges is making sure you're working with a qualified intermediary who is licensed in both states. I learned this the hard way.