diff --git a/Src/Newtonsoft.Json.Tests/Serialization/TypeNameHandlingTests.cs b/Src/Newtonsoft.Json.Tests/Serialization/TypeNameHandlingTests.cs
index c5c582dd..93fa0877 100644
--- a/Src/Newtonsoft.Json.Tests/Serialization/TypeNameHandlingTests.cs
+++ b/Src/Newtonsoft.Json.Tests/Serialization/TypeNameHandlingTests.cs
@@ -1740,6 +1740,34 @@ namespace Newtonsoft.Json.Tests.Serialization
                 }
             }
         }
+
+#if !NET20
+        [Test]
+        public void ExistingBaseValue()
+        {
+            string json = @"{
+    ""itemIdentifier"": {
+        ""$type"": ""Newtonsoft.Json.Tests.Serialization.ReportItemKeys, Newtonsoft.Json.Tests"",
+        ""dataType"": 0,
+        ""wantedUnitID"": 1,
+        ""application"": 3,
+        ""id"": 101,
+        ""name"": ""Machine""
+    },
+    ""isBusinessEntity"": false,
+    ""isKeyItem"": true,
+    ""summarizeOnThisItem"": false
+}";
+
+            GroupingInfo g = JsonConvert.DeserializeObject<GroupingInfo>(json, new JsonSerializerSettings
+            {
+                TypeNameHandling = TypeNameHandling.Objects
+            });
+
+            ReportItemKeys item = (ReportItemKeys)g.ItemIdentifier;
+            Assert.AreEqual(1, item.WantedUnitID);
+        }
+#endif
     }
 
 #if !NETFX_CORE
@@ -1941,6 +1969,42 @@ namespace Newtonsoft.Json.Tests.Serialization
         public string String { get; set; }
         public int Integer { get; set; }
     }
+
+#if !NET20
+    [DataContract]
+    public class GroupingInfo
+    {
+        [DataMember]
+        public ApplicationItemKeys ItemIdentifier { get; set; }
+
+        public GroupingInfo()
+        {
+            ItemIdentifier = new ApplicationItemKeys();
+        }
+    }
+
+    [DataContract]
+    public class ApplicationItemKeys
+    {
+        [DataMember]
+        public int ID { get; set; }
+        [DataMember]
+        public string Name { get; set; }
+    }
+
+    [DataContract]
+    public class ReportItemKeys : ApplicationItemKeys
+    {
+        protected ulong _wantedUnit;
+
+        [DataMember]
+        public ulong WantedUnitID
+        {
+            get { return _wantedUnit; }
+            set { _wantedUnit = value; }
+        }
+    }
+#endif
 }
 
 #endif
\ No newline at end of file
diff --git a/Src/Newtonsoft.Json/Serialization/JsonSerializerInternalReader.cs b/Src/Newtonsoft.Json/Serialization/JsonSerializerInternalReader.cs
index e91e4a29..9b84991f 100644
--- a/Src/Newtonsoft.Json/Serialization/JsonSerializerInternalReader.cs
+++ b/Src/Newtonsoft.Json/Serialization/JsonSerializerInternalReader.cs
@@ -374,6 +374,7 @@ namespace Newtonsoft.Json.Serialization
         {
             string id;
             object newValue;
+            Type resolvedObjectType = objectType;
 
             if (Serializer.SpecialPropertyHandling == SpecialPropertyHandling.ReadAhead)
             {
@@ -389,13 +390,13 @@ namespace Newtonsoft.Json.Serialization
                     reader = tokenReader;
                 }
 
-                if (ReadSpecialPropertiesToken(tokenReader, ref objectType, ref contract, member, containerContract, containerMember, existingValue, out newValue, out id))
+                if (ReadSpecialPropertiesToken(tokenReader, ref resolvedObjectType, ref contract, member, containerContract, containerMember, existingValue, out newValue, out id))
                     return newValue;
             }
             else
             {
                 CheckedRead(reader);
-                if (ReadSpecialProperties(reader, ref objectType, ref contract, member, containerContract, containerMember, existingValue, out newValue, out id))
+                if (ReadSpecialProperties(reader, ref resolvedObjectType, ref contract, member, containerContract, containerMember, existingValue, out newValue, out id))
                     return newValue;
             }
 
@@ -409,7 +410,8 @@ namespace Newtonsoft.Json.Serialization
                     bool createdFromNonDefaultConstructor = false;
                     JsonObjectContract objectContract = (JsonObjectContract)contract;
                     object targetObject;
-                    if (existingValue != null)
+                    // check that if type name handling is being used that the existing value is compatible with the specified type
+                    if (existingValue != null && (resolvedObjectType == objectType || resolvedObjectType.IsInstanceOfType(existingValue)))
                         targetObject = existingValue;
                     else
                         targetObject = CreateNewObject(reader, objectContract, member, containerMember, id, out createdFromNonDefaultConstructor);
@@ -433,7 +435,7 @@ namespace Newtonsoft.Json.Serialization
                         if (reader.TokenType == JsonToken.StartObject)
                             throw JsonSerializationException.Create(reader, "Unexpected token when deserializing primitive value: " + reader.TokenType);
 
-                        object value = CreateValueInternal(reader, objectType, primitiveContract, member, null, null, existingValue);
+                        object value = CreateValueInternal(reader, resolvedObjectType, primitiveContract, member, null, null, existingValue);
 
                         CheckedRead(reader);
                         return value;
@@ -503,7 +505,7 @@ namespace Newtonsoft.Json.Serialization
 
             throw JsonSerializationException.Create(reader, @"Cannot deserialize the current JSON object (e.g. {{""name"":""value""}}) into type '{0}' because the type requires a {1} to deserialize correctly.
 To fix this error either change the JSON to a {1} or change the deserialized type so that it is a normal .NET type (e.g. not a primitive type like integer, not a collection type like an array or List<T>) that can be deserialized from a JSON object. JsonObjectAttribute can also be added to the type to force it to deserialize from a JSON object.
-".FormatWith(CultureInfo.InvariantCulture, objectType, GetExpectedDescription(contract)));
+".FormatWith(CultureInfo.InvariantCulture, resolvedObjectType, GetExpectedDescription(contract)));
         }
 
         private bool ReadSpecialPropertiesToken(JTokenReader reader, ref Type objectType, ref JsonContract contract, JsonProperty member, JsonContainerContract containerContract, JsonProperty containerMember, object existingValue, out object newValue, out string id)