What is depreciation recapture in a 1031 Exchange Boot?

When dealing with Depreciation Recapture in a 1031 Exchange Boot, there are important tax implications to consider. The recaptured depreciation is treated as ordinary income and is taxed at the applicable tax rate. This differs from the capital gains tax rate typically associated with 1031 exchanges.

Can a section 1031 exchange defer capital gains or depreciation recapture?

Section 1031 Exchanges are all about deferring taxes in asset sales. While deferring capital gains taxes often grab the headlines, depreciation recapture costs can skyrocket as well. Tax deferral for both taxes is dependent upon a successful 1031 exchange. Depreciation recapture deferrals are however somewhat more nuanced than gains.

Does a 1031 exchange defer depreciation?

When engaging in a 1031 exchange, the total gain on the relinquished property is deferred, as it is reinvested into a like-kind replacement property. However, any depreciation taken on the relinquished property is subject to recapture.