Increasing Cost Basis by Assuming Greater Debt

If you assume greater debt with the replacement property than you had with the property you sold, you may add the debt to your investment’s tax basis. This larger tax basis can provide increased tax shelter due to a larger deduction for depreciation expenses, an accounting practice that is allowed even if the property is appreciating in value.

If a significant number of investors has owned their relinquished property for some time and have little or no remaining debt, it is worth considering increasing basis through investment in a conservatively leveraged property.