Basis and Holding Period of Property Acquired in 1031 Exchange

Q: Basis and Holding Period of Property Acquired in 1031 Exchange

Basis of Property Received If an exchange is taxable under IRC Sec. 1031, gain or loss is recognized, and the basis of property received in the exchange is the property's FMV. If the exchange qualifies for nonrecognition, the basis of property received must be adjusted to reflect any deferred gain or loss. The basis of like-kind property received in a Section 1031 exchange is determined as follows: Adjusted basis of like-kind property given + Adjusted basis of boot (other property or cash) given (if any) - Loss recognized (if any) on boot given + Gain recognized (lesser of gain realized or boot received) on exchange (if any) - FMV of boot received (if any) = Basis of like-kind property received Holding Period for Property Received The holding period of property surrendered in a Section 1031 exchange carries over and tacks on to the holding period of the like-kind property received [IRC Sec. 1223(1)]. The boot received has a new holding period (beginning on the date of exchange) rather than a carryover holding period. Note: Depreciation recapture potential also carries over from the property transferred to the property received in a like-kind exchange.

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Basis of Property Received

If an exchange is taxable under IRC Sec. 1031, gain or loss is recognized, and the basis of property received in the exchange is the property’s FMV. If the exchange qualifies for nonrecognition, the basis of property received must be adjusted to reflect any deferred gain or loss. The basis of like-kind property received in a Section 1031 exchange is determined as follows:

Adjusted basis of like-kind property given
+

Adjusted basis of boot (other property or cash) given (if any)
–

Loss recognized (if any) on boot given
+

Gain recognized (lesser of gain realized or boot received) on exchange (if any)
–

FMV of boot received (if any)
=

Basis of like-kind property received

Holding Period for Property Received

The holding period of property surrendered in a Section 1031 exchange carries over and tacks on to the holding period of the like-kind property received [IRC Sec. 1223(1)]. The boot received has a new holding period (beginning on the date of exchange) rather than a carryover holding period.

Note: Depreciation recapture potential also carries over from the property transferred to the property received in a like-kind exchange.