Can a 1031 exchange defer depreciation recapture?

Fortunately, investors can defer depreciation recapture by engaging in a 1031 property exchange, also called a like kind exchange. In a 1031 Exchange, investors can defer taxes on the sale of real property as long as they use the sales proceeds to purchase another like-kind property.

How do I avoid depreciation recapture?

The most effective way to avoid depreciation recapture is to use a 1031 exchange. A 1031 exchange allows you to avoid depreciation recapture for the same reason it allows you to avoid capital gains taxes. In the eyes of the IRS, you’re trading the property, not selling it. Therefore, there’s no financial gain to tax.

What is a recaptured amount in a 1031 exchange?

In a 1031 exchange, the recaptured amount is the difference between the property's adjusted basis and its fair market value at the time of the exchange. To calculate the recaptured amount, individuals need to determine the accumulated depreciation on the property and subtract it from the property's adjusted basis.