--- title: Does Depreciation Restart after a 1031 Exchange? description: When investors do a 1031 exchange, their basis carries over into the replacement property. They are also able to continue taking the annual depreciation expense. But does the depreciation restart or change from the existing schedule once the replacement property is acquired? image: https://www.realized1031.com/hubfs/Images/Blog/cash-investing-savings-performance-chart-is1358151834.jpg --- [![Realized 1031 Exchange Marketplace](https://www.realized1031.com/hs-fs/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black.png?width=240&height=80&name=Realized-Logo-Black.png "Realized 1031 Logo") ](https://www.realized1031.com/) - [Wealth Management Gap](https://www.realized1031.com/the-wealth-management-gap) - [Our Process](https://www.realized1031.com/how-realized-works) - [Financial Advisors](https://www.realized1031.com/advisor) - [Resources](https://www.realized1031.com/resources) - [The Company](https://www.realized1031.com/about-us) - [Articles](https://www.realized1031.com/blog) [Register](https://www.realized1031.com/marketplace) [Log In](https://www.realized1031.com/login) - Better Business Bureau Rating: **A+** - [FINRA BrokerCheck](https://brokercheck.finra.org/firm/summary/22333) - [Call](tel:1-877-797-1031) **(877) 797-1031** # Does Depreciation Restart after a 1031 Exchange? Posted May 16, 2023 ![cash-investing-savings-performance-chart-is1358151834](https://www.realized1031.com/hs-fs/hubfs/Images/Blog/cash-investing-savings-performance-chart-is1358151834.jpg?width=750&height=500&name=cash-investing-savings-performance-chart-is1358151834.jpg) When investors do a 1031 exchange, their [basis ](https://www.realized1031.com/blog/how-to-calculate-cost-basis-for-rental-property)carries over into the replacement property. They are also able to continue taking the annual depreciation expense. But does the depreciation restart or change from the existing schedule once the replacement property is acquired?  ### Calculating The New Basis Using an example is the best way to see what happens to depreciation in a 1031 exchange. First, we will calculate the new basis for the replacement property. The properties in this example are residential rentals: Purchase price: $500,000 Land Value: $100,000 Annual Depreciation: $500,000 - $100,000 = $400,000 / 27.5 = $14,545 Held for 7 years: 7 x $14,545 = $101,815 in total depreciation Cost basis: $500,000 - $101,815 = $398,185 Sale price: $700,000 Gain: $700,000 - $398,185 = 301,815 The investor’s cost basis is $398,185, and the [capital gain](https://www.realized1031.com/glossary/capital-gain) is $301,815. This investor is doing a 1031 exchange into a $900,000 property. Because the replacement property costs more, additional funds must be added. In this case, $200,000 is added to the exchange (i.e., $900,000 - $700,000), which is also added to the cost basis.  New adjusted basis: $398,185 + $200,000 = $598,185 ### A 1031 Exchanges Impact on Depreciation The investor has two options when it comes to depreciation for the replacement property. They can create two depreciation schedules or restart the schedule based on the new cost basis. #### Two Depreciation Schedules The first schedule uses the original cost basis of $398,185 and carries the depreciation through the remaining years. The property was held for seven years, leaving 20.5 years of depreciation. This sets up the first schedule. The second schedule works off the amount of money added to the 1031 exchange. In this case, that’s $200,000. The $200,000 is depreciated over the full 27.5 years. #### Restart Depreciation Schedule This schedule works off the new cost basis of $598,185 and depreciates over the full 27.5 years. Which schedule is right for you is best determined by talking to your tax and real estate professionals. This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. 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Calculating The New Basis Using an example is the best way to see what happens to depreciation in a 1031 exchange. First, we will calculate the new basis for the replacement property. The properties in this example are residential rentals: Purchase price: $500,000 Land Value: $100,000 Annual Depreciation: $500,000 - $100,000 = $400,000 / 27.5 = $14,545 Held for 7 years: 7 x $14,545 = $101,815 in total depreciation Cost basis: $500,000 - $101,815 = $398,185 Sale price: $700,000 Gain: $700,000 - $398,185 = 301,815 The investor’s cost basis is $398,185, and the capital gain is $301,815. This investor is doing a 1031 exchange into a $900,000 property. Because the replacement property costs more, additional funds must be added. In this case, $200,000 is added to the exchange (i.e., $900,000 - $700,000), which is also added to the cost basis. New adjusted basis: $398,185 + $200,000 = $598,185 A 1031 Exchanges Impact on Depreciation The investor has two options when it comes to depreciation for the replacement property. They can create two depreciation schedules or restart the schedule based on the new cost basis. Two Depreciation Schedules The first schedule uses the original cost basis of $398,185 and carries the depreciation through the remaining years. The property was held for seven years, leaving 20.5 years of depreciation. This sets up the first schedule. The second schedule works off the amount of money added to the 1031 exchange. In this case, that’s $200,000. The $200,000 is depreciated over the full 27.5 years. Restart Depreciation Schedule This schedule works off the new cost basis of $598,185 and depreciates over the full 27.5 years. Which schedule is right for you is best determined by talking to your tax and real estate professionals.", "articleSection" : [ "1031 Exchange" ], "author" : { "@type" : "Person", "email" : "marketing@realized1031.com", "image" : "", "name" : "The Realized Team", "url" : "https://www.realized1031.com/blog/author/the-realized-team" }, "dateModified" : "2024-03-26T21:54:45+0000", "datePublished" : "2024-03-26T21:54:44+0000", "description" : "When investors do a 1031 exchange, their basis carries over into the replacement property. They are also able to continue taking the annual depreciation expense. But does the depreciation restart or change from the existing schedule once the replacement property is acquired? 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