Based on the numbers you gave and assuming no debt, the
basis is:

basis value
property 1 purchase price $100,000 $100,000
property 1 depreciation 50,000
--------
property 1 adjusted basis $ 50,000 $400,000
property 2 additional cash 100,000
--------
property 2 original basis $150,000 $500,000
property 2 depreciation 50,000
--------
property 2 adjusted basis $100,000
property 2 sale price 700,000
--------
gain before exclusion $600,000

If you and your wife used this property as your principal
residence for at least two years of the five year period
ending on the date of sale, you could exclude $500,000 of
gain on sale.

Any debt relieved or assumed in a like kind exchange would
increase or decrease the amount of gain.

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James wrote:

- quote -

NBV = $50,000

- quote -

Boot paid = $100,000;
depreciable basis of both lumps = $150,000

- quote -

NBV = $100,000

- quote -

Gain = $600,000, some of which is depreciation recapture not
eligible for the exclusion. I'll leave it to someone else
to figure out what portions are taxed and how.

- quote -

Try 400,000 - (100,000 - 50,000) = $350,000

- quote -

Then 700,000 - (500,000 - 50,000) = $250,000

- quote -

$350,000 + $250,000 = $600,000

Phoebe

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sorry about unclear example.

let's say. I bought a rental property for $100,000. for next
10 years, I took $50,000 depreciation. Then sold it for
$400,000 with 1031 exchange, and bought another rental
property for $500,000. then rented it out for 5 years more
and took $50,000 depreciation during rental period. Then
moved in and lived for 5 years and sold it for $700,000.

purchase price: $100,000
depreciation: $50,000

1031 exchange:
sold for: $400,000
bought for $500,000

rented for 5 years
depreciation: $50,000

moved in and
lived for 5 years
sold for $700,000

here is my calculation: (ignored minor expences like
improvment/broker fees, etc for sake of calculation)

400000 - 100000 - 50000 = 350,000 (deferred capital gains from 1st rental
property)

700000 - 500000 - 50000 = 150,000 (from second property)

total capital gains = 350000 + 150000 = 500,000

Now I can claim exclusion for $500,000, can't I??? Is my
calucation correct?

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"James" <cjsh2125[at]hotmail.com> wrote:

- quote -

In order for the gain on the exchange to qualify for
deferral under the like kind rules, it must qualify under
IRC Section 1031:

Sec. 1031. Exchange Of Property Held For Productive Use Or
Investment 1031(a) Nonrecognition Of Gain Or Loss From
Exchanges Solely In Kind 1031(a)(1) In General -- No gain
or loss shall be recognized on the exchange of property held
for productive use in a trade or business or for investment
if such property is exchanged solely for property of like
kind which is to be held either for productive use in a
trade or business or for investment.

I assume that the second property will be held in a
qualifying use for a period of time (unfortunately, there is
not a "bright line" test for how long) before conversion to
a principal residence.

If I understood you correctly, you purchased the first
property for $100,000 and deducted $50,000 of depreciation
on this property before exchanging it for a property worth
$400,000.

Assuming no debt on either property, the basis is:

cost of first property $100,000
depreciation before exchange 50,000
--------
basis of first property before exchange $ 50,000

If you did not pay any additional cash, the basis of the
second property is also $50,000.

If there is any debt on either property, the basis would be
different.

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James wrote:

- quote -

If I understand you correctly, I vote that your basis is
$50,000. In order not to blow your 1031 exchange, you have
to intend that the new property be a rental property, I
believe. This kind of analysis doesn't work in your favor
in showing your intent.

Phoebe

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"James" <cjsh2125[at]hotmail.com> wrote

- quote -

Hmmm! It seems to me you've blown qualifying for doing a
1031 exchange in your first sentence. Your INTENT is to
make the new property your primary residence, is it not?
That is NOT like kind property. But if you do really
exchange for rental property, the answer to your question is
that the basis is the FMV of the new property MINUS the
deferred gain on the old property (though it is not really
quite that simple as there are usually lots of other things
that come into the calculation such as exchange expenses,
boot given or received, etc.). So it appears from your
example (which is not really clear) that the basis in the
new property is $50K.

Vida Freeman, EA

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One simple question.
Once I proceed with 1031 exchange, then later move into the
rental property, which becomes the primary residency for 2
years. Then sell the property. How to calculate the base?

i.e) first rental: $100K
exchange to $400K ==> 300K + $50K depreciation = $350K deferred
converted to primary res for 2 years
sell price $500K
Is base $400K or $100K?

thank you very much for your help.

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