1031 Exchanges & Recaptured Depreciation

1031 Exchanges & Recaptured Depreciation

When you own real estate and make improvements to it, you can take a deduction on your tax return for the theoretical wear-and-tear on the property. This is one of the great benefits of owning real estate. In this article, we are going to talk about recaptured depreciation and 1031 exchanges.

Residential vs. Commercial Property

Residential rental property is depreciated over 27.5 years, and commercial property is depreciated over 39 years. That means that even if your property increases in value, you can take a deduction for the wear-and-tear on the property.

However, the disadvantage is that your basis is reduced incrementally each year. If you own an apartment building for 27 years, your property will have a zero basis on the improvements because you have run out the clock on your depreciation.

When you go to sell your property, all of your depreciation related gain is taxed at a higher rate than standard capital gains tax rates. Thankfully, you can do a 1031 exchange and defer all of those capital gains taxes.

1031 Exchange Professionals

Considering deferring taxes with a 1031 exchange? Be sure to consult with a 1031 exchange professional about the details of your exchange before you start the process. At Commercial Partners Exchange Company, our intermediaries have over twenty years of experience facilitating exchanges of real estate. With offices located in downtown Minneapolis and around the country, we are well equipped to help you with your 1031 exchange no matter where your property is located. Contact us today to set up a time to speak with one of our 1031 exchange professionals about your transaction.

  • Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.


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