1. What is 1031 Exchange Basis Calculation?

The 1031 exchange allows investors to defer capital gains taxes when selling and replacing investment properties. The adjusted basis calculation determines the new property's basis for future depreciation and tax calculations.

2. How Does the Calculator Work?

The calculator uses the basis calculation formula:

Where:

• \( Old\ Basis \) — Original cost basis of the relinquished property
• \( Gain\ Deferred \) — Capital gains deferred through the exchange
• \( Boot \) — Cash or other non-like-kind property received in the exchange

Explanation: This formula calculates the new basis for the replacement property, which will be used for future depreciation calculations and capital gains when the property is eventually sold.

3. Importance of Basis Calculation

Details: Accurate basis calculation is crucial for proper tax planning, determining depreciation deductions, and calculating future capital gains taxes when the replacement property is sold.

4. Using the Calculator

Tips: Enter the old basis of the relinquished property, the amount of gain being deferred, and any boot received. All values must be in dollars and non-negative.

5. Frequently Asked Questions (FAQ)

Q1: What is boot in a 1031 exchange?
A: Boot refers to cash or other non-like-kind property received in the exchange that is taxable to the extent of the realized gain.

Q2: How does basis affect depreciation?
A: The adjusted basis becomes the new cost basis for depreciation calculations on the replacement property.

Q3: What happens if boot exceeds the gain deferred?
A: If boot received exceeds the gain deferred, the excess is taxable as capital gains in the year of the exchange.

Q4: Can improvements be added to the basis?
A: Yes, capital improvements made to the replacement property can be added to the adjusted basis for depreciation purposes.

Q5: How does this affect future sales?
A: The adjusted basis is used to calculate capital gains when the replacement property is eventually sold outside of a 1031 exchange.