1031 exchange and carried over basis

Dear 1031x:  In regards to an already successful  deferred exchange, if the relinquished property has been fully depreciated  doesn't this mean that the basis has been  driven-down to zero? Since the basis of the old property is transferred to  the new property, is there any form of depreciation for the new property?  Also, is there any depreciation recapture?

Dear S: 1)  If the relinquished property has a zero basis when sold then the replacement property will only have a basis equal to the amount that the replacement property exceeds the relinquished property in value.  For example is you sell a zero basis property for $200K and 1031x into a replacement property with a value of $250K then the basis for the replacement property will be $50K. 2) If you do a valid 1031x then there is no recapture of depreciation.  The recaptured depreciation tax liability is also deferred.  Let me know if you need more.  S.

Steve Hickox
Attorney / President