1031 Exchange Sample Study, Election Out
The same exchange with the election made, read side by side with the default rule study.
Illustrative sample
Dollar figures shown are illustrative and come from the sample's own data. Estimates, never guarantees; results depend on your specific tax situation.
The Two Elections Side by Side
| Figure | Default rule sample | Election out sample |
|---|---|---|
| Carryover basis | $1,150,000 | $1,150,000 |
| Excess basis studied | $2,200,000 | $2,200,000 |
| First year depreciation on the carryover basis | $76,356 | $73,748 |
| Years on the carryover schedule | 15 | 28 |
What Differs
The two studies differ in: First year depreciation on the carryover basis and Years on the carryover schedule.
The two studies share the property, the land value, the three positions and the class totals.
Default rule sample: This study applies the default rule, makes no election, and keeps the carryover basis and the excess basis on separate schedules.
Election out sample: This study makes the election not to apply the default rule.
The default rule and the election are set out below, with their source.
- Treasury Regulation 1.168(i)-6 sets the default depreciation rules for property received in a like kind exchange. The exchanged basis generally keeps depreciating on the schedule already running for the property given up, and the excess basis, which is any basis above the exchanged basis, is treated as newly placed in service and depreciated separately. A taxpayer may elect not to apply these rules. With the election, the exchanged basis and the excess basis together are treated, for depreciation only, as property placed in service at the time of replacement, and the property given up is treated as disposed of, so a new recovery period begins for all of the basis. The election does not change whether the exchange is tax deferred under section 1031. It is made separately for each exchange on a timely filed return, including extensions, for the year of replacement, and once made it can be revoked only with the consent of the Commissioner, which is granted only in extraordinary circumstances. Where the other requirements of section 168(k) are met, bonus depreciation reaches only the excess basis when the replacement property is used property, with or without the election. When the original use of the replacement property begins with the taxpayer, the exchanged basis is eligible as well. Source: Treas. Reg. section 1.168(i)-6(b)(7) and (8), (c), (d)(1), (i)(1) and (j); Treas. Reg. section 1.168(k)-2(g)(5)(iii)(A) and (D); Instructions for Form 4562 (2025), Property acquired in a like-kind exchange or involuntary conversion
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