How do I calculate my basis in the replacement property after a 1031 exchange?

The new property inherits the old property's basis, which is why the purchase price is the wrong number

Your starting point is whatever the property you sold was carried at on the day it closed, not what the replacement cost. Section 1031(d) says the basis of property acquired in the exchange "shall be the same as that of the property exchanged, decreased in the amount of any money received by the taxpayer and increased in the amount of gain … recognized."

Publication 544 states the plain case: trade investment real estate carried at $225,000 for other investment real estate with no cash and no debt on either side, and the basis of the new property is $225,000.

Everything else on this page is that sentence plus the adjustments for money and debt. If you still need the adjusted basis of the property you sold, work that figure out first, because a wrong number there travels into every later year.

Four adjustments turn the old figure into the new one

Money received reduces it, money paid increases it, recognized gain increases it, and anything you received that was not like-kind takes its own fair market value and is carved out.

• Money received: cash the intermediary sends back, plus the excess of the mortgage discharged at your sale over the debt you took on at the purchase. Section 1031(d) treats a liability the other party assumes as money received.
• Money paid: outside cash you wired into the purchase, plus the excess of new debt over the debt you shed.
• Gain recognized: the figure on Form 8824 line 23, which lands back in the basis so the same dollars are never taxed twice.
• Non-like-kind property received: it comes out at fair market value and is not part of the like-kind basis at all.
• Closing costs behave differently depending on whether there was boot; which of them adjust basis and which are deductible is a separate question.

A $900,000 duplex into a $1,050,000 building: both routes give $390,000

Hypothetical figures, rounded. You sell a duplex carried at $240,000 for $900,000, a $350,000 loan is paid off at closing, and your intermediary holds $550,000. You buy a $1,050,000 building with a new $500,000 loan and every dollar of the $550,000.

Statutory route: $240,000 of old basis, minus $350,000 of debt relief treated as money received, plus $500,000 of new debt treated as money paid, plus no recognized gain, gives $390,000.

Cross-check route: your realized gain is $900,000 minus $240,000, or $660,000, all of it deferred. Take that off the $1,050,000 you paid and you land on $390,000 again. When the two routes disagree, one of the debt figures is usually being counted gross instead of net.

Keeping $50,000 of the proceeds changes the tax bill, not the basis figure

Rework the same hypothetical with a $1,000,000 replacement, a $500,000 loan and $50,000 wired back to you after day 180. Form 8824 line 15 is $50,000, line 19 is still $660,000, and line 20 caps the recognized gain at $50,000.

Line 25 then reads $390,000 plus $50,000 of recognized gain minus $50,000 of money received: $390,000, the identical figure. What moved is line 24, the deferred gain, which drops from $660,000 to $610,000.

That is the shape of every partial exchange. Cash you keep converts deferred gain into current gain dollar for dollar, and the ledger you hand your depreciation software does not notice. What that $50,000 is taxed at is decided elsewhere.

Two replacements, or a building plus two trusts, split one number by fair market value

You do not compute a basis for each replacement separately. Regulations section 1.1031(j)-1(c) says the aggregate basis of an exchange group "is allocated proportionately to each property received in the exchange group in accordance with its fair market value."

So $390,000 of basis spread over a $700,000 building and a $350,000 Delaware statutory trust interest goes two-thirds and one-third: $260,000 and $130,000. Each then carries its own land and improvement split and its own schedule.

The same proportion drives lines 25a, 25b and 25c, where the instructions require the §1250, §1245 and intangible shares to be "proportionate to their FMVs." A trust interest is described by the trust's name and your percentage; reporting several replacements on one form has its own rules.

Three numbers that look decisive and are not

An appraisal on the replacement does not touch it. Fair market value decides how one basis figure is split between several properties, and nothing more; a $1,200,000 appraisal on a $1,050,000 purchase leaves line 25 where it was.

A refinance after closing does not touch it either. Borrowing against the new property produces cash that is not income and a loan that is not basis, which is why pulling equity out afterwards is handled as its own decision.

Inside a Delaware statutory trust, the price the sponsor paid for the building is not your number. Your basis is your carried figure plus your share of the trust's nonrecourse debt, which is usually far below your pro rata share of the purchase price, and the trust's leverage is what creates that debt-assumed amount.

In a chain, each exchange starts where the last one's line 25 finished

The third exchange in a row is not harder than the first. Line 25 of the prior Form 8824, reduced by every year of depreciation you claimed since, is the adjusted basis you carry into the next line 18.

Deferred gain therefore accumulates rather than resets. Hypothetically: a $985,000 sale exchanged into a $2,000,000 purchase leaves a basis near $1,015,000; sell that for $2,200,000 years later and the gain includes both the original $985,000 and the new appreciation, minus whatever depreciation has since reduced the basis.

A frequent worry is that a single weak replacement destroys the basis you have built. It does not. Buying a property that later falls in value gives you a loss to recognize on that property, and the carried basis is what makes that loss possible; it is the cash sale at the end of the chain that settles the account. Confirm your figures with your own CPA or attorney before they go on a return.