Answer
Aug 14, 2025 - 11:07 AM
You raise a good point, because when it comes to things like accelerated depreciation, et cetera, if you do a 1031 exchange into a property, into a very similar property with the same ratio of improvements to land value, and you've already completely changed depleted your depreciation deduction over time, then there's no, there won't be any additional benefit in your 1031 exchange into the new property because you've already exhausted all of the depreciation. And when you do a 1031 exchange, you don't get to start over on your depreciation unless, and this is a huge unless, unless you invest in, in a property in a 1031 exchange where the property that you're buying has a higher value than the property you sold. And this actually happens a lot in our space because we do have clients that have low or no debt on the property they sold. And then they'll invest in, for example, in a DST program that says that perhaps has a 40% loan to value baked into the investment program. And so even though you put in a million dollars, you acquired $1.25 million worth of real estate for tax purposes. Well, that additional quarter million dollars of real estate that you acquired because of the fact that there's built-in financing on that property, that's new real estate to you. And you can start a whole new depreciation deduction schedule of that incremental increase in real estate. Furthermore, most of the programs we're putting clients in are located in states where the improvements are a much higher percentage of the value of the property than, say, Southern California, where the land is 60% of the value. And if you buy a DSG property and it's a FedEx distribution center outside of Atlanta, Georgia, and it's 90% of the value or improvements, then in my example, then you could depreciate $225,000 of depreciation new starting at that moment and even have some bonus depreciation available in that scenario. And then suddenly you now have a new depreciation deduction that you didn't have on the property you sold. So there are opportunities to do achieve new and greater depreciation deductions in a 1031 exchange, you know, based on the opportunity to acquire more real estate than you sold, at least on paper.
