Updated August 17, 2026
Carryover basis is the adjusted basis brought forward from the relinquished property into the replacement property in a 1031 exchange, and it determines how depreciation continues afterwards.
Under the default rules the carryover portion continues depreciating on the relinquished property's existing schedule over its remaining recovery period — it does not restart. Only excess basis, the amount by which you traded up, is treated as newly placed in service.
This is why an owner exchanging a fully depreciated 1970s LA building into a larger asset does not get a fresh schedule on the full purchase price. An election to treat the combined basis as newly acquired exists and is made on Form 4562 with a timely return for the year the replacement is received.
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