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In doing this transaction is the depreciated value of the exchanged property transferred to the new property? Example: I sell for 200,000 a property that cost 100,000, it has been depreciated to 30,000 if I purchase a property for 100,000 it should be a tax deferred purchase with a basis of 30,000?

As noted before, I'm not a 1031 expert, but that's the way I read it. You have a $170,000 gain, $100,000 of which (the cash out)is recognized and $70,000 of which is deferred by reducing your basis in the replacement property, leaving you with a basis of $30,000.

Not while right. The IRS came out in either 1999 or 2000 with a interpertation that you have to carry forward gross basis and accumulated depreciation. For the carryover basis from the old property, you continue to depreciate it using the method and life as if you had not sold. Any additions to the basis resulting from the purchase is treated as new property and you start depreciating that as new property. In your case you have a basis of $100,000 and accumlated depreciation of $70,000.

They did this so that the depreciation recapture (at 25%) will not be lost. Under your thinking, you could turn around and sell the property and report the $70,000 as long term at 20% not at 25%.
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