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We have a rental property that we bought in 2006. It is worth slightly less or the same in value now. We are buying a new rental property, and I was just wondering if we should go through the hassle of exchanging it in a 1031 exchange, or just pay the tax on the depreciation. We have taken a write-off of $41,213 depreciation over the last seven years. Would we be better off to pay the Kansas State taxes rather than roll over into a 1031 exchange? We are buying a new property in San Diego, California.


The BIDaWIZ Team's Answer:

This is a good question as the state tax you will pay now on the depreciation recapture in Kansas would be lower than in California. California is one of those very unfriendly states from a tax perspective. By utilizing the 1031 exchange, you would be deferring the depreciation recapture to a higher state tax in California versus Kansas. Thus, there may be a lot of reasons to pay the tax now on the recapture in Kansas.
References: IRS Publication 544 and IRC Section 1250
State: Kansas, California

The BIDaWIZ Team



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