If I build on my own lot, will I have to realize the deferred tax from depreciation from a 1031 Exchange?

Question

I 1031 Exchanged into my properties. And I want to build townhouses on them and sell them. Do I have to realize the defrred tax from depreciation?

I want to tear down 2 triplexes on my lot and build some townhouses on top and then sell them. Do I have to realize the deferred tax from depreciation?

Answer 1

Are you talking about depreciation on bare land ? You can't depreciate bare land. If your accountant did, you might be in trouble. You can only depreciate improvements to the property. If you are talking about the 'deferred depreciation' rolled into the transaction from the exchange, you will have to recapture if you build a personal residence for yourself. If you build more investment property, then not.