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I did a 1031 exchange last year and I’m just figuring out my taxes now so I’m going over the form to file for the exchange. It appears that the basis of the new property essentially follows the basis for the previous property — that is, it keeps depreciating from the previous value. This means that my basis and my depreciation for the new property will be very low, and continue to decrease, until eventually I will have no depreciation to claim at all if I keep holding the property or keep exchanging into new properties. Is there any way to avoid losing this depreciation allowance while still keeping the advantages of the tax-deferred exchange (it’s called “having your cake and eating it too!”)?
– dan
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