A Few Tips for Avoiding Taxable Boot in a Like-Kind Exchange

“Boot” is any cash or non-like-kind property you receive in a 1031 exchange. It’s important to remember that boot is taxable. If you do not reinvest in like-kind property, any proceeds you receive is taxable boot!

2 Ways to Receive Boot

There are two common ways in which investors receive boot during a 1031 exchange:

1. Cash Boot: You receive cash or other property from the 1031 exchange.

2. Mortgage (Debt Relief) Boot: You owe less debt on your new 1031 replacement property than you paid off on the old relinquished property. For example, if you sell a property with a $500k mortgage and replace it with a property that has a $400k mortgage, you have $100k in debt relief. This $100k would be taxable boot.

How to Avoid Boot

Here are some tried and true methods for avoiding boot in your 1031 exchange:

• Make sure you reinvest all of your proceeds into your replacement property.

• Acquire property of equal or greater value.

• Replace or offset debt relief.

• Do not take any cash at closing.

If you want to take some cash at closing, you have the option to do so, but keep in mind that any cash you take is taxable. For example, if you sell a property for $1 million and purchase a replacement property for $950k, and pocket $50k in cash, that $50k is taxable boot.

Find a 1031 Exchange Intermediary

If you are embarking on a 1031 exchange, it’s a best practice to work with a qualified intermediary who has experience in the 1031 exchange industry. At CPEC1031, LLC our intermediaries have facilitated countless like-kind exchange transactions of all types (forward, reverse, construction, and more!) We can guide you through the like-kind exchange process and make sure you have a comprehensive understanding of the ins and outs of the 1031 exchange process so you are ready when it comes time to close on your property. Contact our team of 1031 exchange professionals today to set up a time to chat.

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved

RSVP For a Free 1031 Exchange Event - Growing and Improving your Real Estate Portfolio with 1031 Exchanges

Welcome to the Strategies For Growing and Improving your Real Estate Portfolio with 1031 Exchanges event! Join us at Redstone American Grill for an informative session on maximizing your real estate investments through 1031 exchanges. Learn from expert in the field, Jeff Peterson, and network with fellow investors & Realtors. Whether you're a seasoned pro or just starting out, this event will provide valuable insights to help you defer tax and leverage your current real estate portfolio. Don't miss this opportunity to expand your portfolio and take your investments to the next level!

Event Details

• Date: Tuesday, December 9, 2025

• Time: 5:45 PM – 8:00 PM

• Location: Redstone American Grill. 12241 Wayzata Boulevard, Minnetonka, MN 55305

Find A Qualified Intermediary For Your Next Exchange

Find a skilled qualified intermediary to help with your next 1031 exchange of real estate. At CPEC1031, LLC our team is ready and able to help you through all the ins and outs of the like-kind exchange process. We can help ensure that you meet all the benchmarks outlined in section 1031, and that you ultimately defer 100% of your capital gains tax burden. With decades of experience, we have the knowledge and expertise needed to facilitate your next 1031 exchange. Contact us today at our Twin Cities office to learn more and see how we can help!

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved

3 Pro Tips For Dealing with Boot in a 1031 Exchange

Receiving any taxable boot during the 1031 exchange process can completely derail your like-kind exchange. In this article, we are going to walk through three pro tips for dealing with boot in a 1031 exchange of real estate.

Watch for Prorated Taxes, Rents & Security Deposits

Keep an eye out for prorated taxes, rents, or security deposits charged back at closing. These can created unintended boot. Have your tax advisor review your settlement statement before you close on your property.

Do The “Boot Test”

Use the “Boot Test” – if your replacement property value and debt assumed is greater than or equal to your relinquished property value and debt paid off, then you are probably safe.

Keep Your Hands Off the Proceeds

Never touch the proceeds yourself. The moment you (or your agent) have access to the funds, it is considered constructive receipt and your 1031 exchange will fail.

Like-Kind Exchange Company in Minnesota

Don’t let boot catch you off guard in a 1031 exchange. Even small details can turn your tax-deferred exchange into a taxable event. Partner with a qualified intermediary who keeps every dollar segregated and compliant.

If you’ve been searching for a like-kind exchange company in Minnesota, you’re in the right place! CPEC1031, LLC is a Minneapolis-based like-kind exchange company with more than two decades of experience in the 1031 exchange industry. We have a skilled team of qualified intermediaries standing by to walk you through the specifics of your next 1031 exchange. Whether you’re doing a forward exchange, reverse exchange, construction exchange, or something more complex – we’ve got the knowledge and expertise to make sure you are able to defer 100% of your capital gains taxes.

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved

Video – 1031 Exchange Boot & Buying Down in Value

A Lesson About Basis & Why You Need to Involve Your Tax Advisor in Your 1031 Exchange

Ouch! You thought you were going to defer your gains in a partial 1031 exchange. Knowing that you were buying down in value, you hoped that you would get some benefit from the 1031 exchange. But you’re disappointed now because you bought a replacement property that was too far down in value. The reason that you’re not getting any tax deferral is that you have a transferred basis in a 1031 exchange. Your old basis transfers to the new property and you only start enjoying tax deferral for every dollar of value you buy over and above your transferred basis.

The starting point for this analysis is to talk to your accountant or tax advisor and ask what your current adjusted basis is and how low you can buy while still enjoying some measure of tax deferral.

Another way to fix this problem is to identify and purchase multiple replacement properties and cobble together enough value to get the desired tax deferral.

You could also do a build-to-suit exchange in which you erect improvements upon the replacement property during your 180 day exchange period to increase the value of the replacement property and enhance the amount of tax deferral that you enjoy.

CPEC1031, LLC – Your 1031 Exchange Intermediaries

Find a qualified intermediary for your next like-kind exchange by contacting CPEC1031, LLC. We have been facilitating like-kind exchanges under section 1031 of the Internal Revenue Code for decades. Our intermediaries have the knowledge and skills necessary to guide you through each and every stage of your 1031 exchange. Whether you’re conducting a forward exchange, a reverse exchange, or a construction exchange, we can help. Contact us today at our Twin Cities office in downtown Minneapolis to start the process!

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved

Video – Can I Sign a Purchase Agreement in a 1031 Exchange?

A common question that many people ask when they’re doing a 1031 exchange is:

“Can I sign a purchase agreement for the purchase of the replacement property even before closing on the sale of the relinquished property?”

The answer is yes, but it’s a very common misconception. In fact, not only can you sign a purchase agreement for your replacement property, you can also do a reverse exchange and have your intermediary acquire the replacement property as your surrogate.

Contact a Qualified Intermediary at CPEC1031, LLC

Contact a qualified intermediary at CPEC1031, LLC for help with your next like-kind exchange under section 1031 of the Internal Revenue Code. We have more than two decades of experience facilitating exchanges of all types - forward, reverse, construction, and more. We are well suited to handling all aspects of the like-kind exchange process and can make sure you do everything necessary to defer 100% of your capital gains tax burden when selling qualifying real estate. Reach out to our team today to set up a time to chat about your next exchange!

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved