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September 27, 2023
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1031 Carryover Asset Depreciable Life

Related products:Lacerte
  • September 27, 2023
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When doing a 1031 exchange in Lacerte, the system creates carryover assets for the basis of the old property that is carried over to the replacement property.  In my case I exchanged a residential rental (27.5 yr life) for a commercial rental (39 yr life).  The regulations are very clear that when depreciating the carryover basis from the exchanged property, if they do not have the same depreciable life, you are to start using the LONGER of the depreciable life of the old property or the new property (Reg 1.168(i)-6(c)(4)(i).  I have also read additional publications (The TaxBook, Journal of Accountancy) that confirm my interpretation of the regulations.  Lacerte automatically shows the depreciable life the of the carryover asset as 27.5 (the same as the exchanged property) with no way to update it to the longer life of 39 years.  After a long phone call with a Lacerte agent, I confirmed there is no way to update it without also changing the depreciable life of the old property for the period through the date of the 1031 exchange.  Prior to the exhange happening (in my case it happened in June) the old life should be maintained (27.5 years) and should only be updated for the carryover asset, post 1031 exchange.  This is a glaring mistake on Lacerte's part which should be changed.  When the 1031 Exchange Wizard creates the carryover asset, it should be a separate input line item in the Depreciation input so the life can be changed if need be.