Dealing with 1245 Property in a 1031 Exchange

1245 Property

Recently I put on a 1031 continuing education class in Rochester, MN that was sponsored by Capstone Financial. One of the participants in the class asked some interesting questions that I  want to expand on in this article.

1245 Property

Here was the participant's question:

"How do you deal with accelerated depreciation that is taken on the relinquished property from a cost segregation study or from other components for example that might be on a farm - what we would call 1245 property?"

If there is a significant amount of 1245 property, you need to work with your tax adviser to make sure that you have, on the replacement side, components that are 1250 property to satisfy your traditional 1031 exchange. But you may also have to acquire components of the replacement property that match up with the old 1245 that you had on the relinquished property.

A Farm Example

So in the context of a farm, there may be pig pens, sheds, silos, and other items that are 1245 property. You may need to make sure that you're buying a replacement property that has similar 1245 components like fiber optic cabling, for example.

  • 1031 Hotline: If you have questions about exchanges of 1245 property, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.


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