In 2004 i paid cash for a vacant lot $80,000.00 it went up in value to $190,000.00 and i traded it even for?

Question

a brand new condo "Like Kind Exchange" ....what is my cost basis if i sell the condo and what is the depreciation value for this years taxes. I closed in June of this year. no money traded hands as the value of the new condo was equal to the vacant lot.

Answer 1

Is the condo a rental property?

If yes, there's a chance you may qualify for a like-kind exchange. If the criteria is met, you report the exchange on a form 8824 and attach it to your tax return. You will calculate that you have a $110K gain, but you are deferring all of it.

If the condo qualifies as rental property, then it's basis is $80,000 (carrying over the first property's amount). Then allocate the basis to the land and the building using the same ratio as the $190 value.

Answer 2

Your basis is the original basis of the land as it passes through with a like-kind exchange. You can adjust for any improvements. You must reduce it by an amount equal to any depreciation allowed or allowable for the time you held it as a rental property.

You depreciate the condo based upon the value of the improvements alone, i.e. the condo unit, not the land value associated with it. If the land value is $5,000, you'd depreciate $75,000. The life for residential real estate is 27.5 years. You must use the mid-month convention for the month it was placed in service, so you take 6.5 months of depreciation for this year.

This assumes that you held the condo as a rental property. If you occupy it as your home you don't qualify for a like-kind exchange and must use the condo's FMV as the sales price on the land and pay the appropriate capital gains tax on the gain. You would not take any depreciation either if you occupied it as your home.

Answer 3

I assume this is a like-kind exchange of investment property.

Your basis for the condo is the basis of the land, plus any improvements you make to the condo. If you sell the condo this year, you will have a long-term capital gain of $110,000 (if no adjustments to the condo's basis are made). If you sell the condo in the year you purchased it, you will have no depreciation.

If you hold the condo after 2007 as a residential rental property, you will depreciate it over 27.5 years, straight-line, mid-month convention, with an acquisition date in June 2007. Your basis for depreciation is the same as your basis for gain ($80,000 plus improvements). Your tax software will compute the depreciation.