Key Takeaways
- In a 1031 exchange, the replacement property inherits the relinquished property's adjusted basis (not fair market value).
- The replacement property has two depreciation layers: exchange basis (old schedule) and excess basis (new schedule).
- A new cost segregation study applies to the excess basis only—providing a "second bite" at accelerated depreciation.
- Coordinate between the QI, CPA, and cost seg firm to execute the 1031 + cost seg strategy within 60 days of replacement closing.
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Test Your Knowledge
1.What happens to the depreciation schedule when a property is exchanged in a 1031 exchange?
2.Can a new cost segregation study be performed on a replacement property acquired through a 1031 exchange?
3.What is the primary documentation challenge when managing depreciation through a chain of 1031 exchanges?