In a 1031 exchange, you need to avoid receiving “boot” if you want to defer 100% of your capital gains taxes. But there are many different ways that you can inadvertently receive boot during your transaction. In this article, we are going to talk about a few common ways in which people receive boot in a 1031 exchange and how to avoid them.
Types of Boot
Boot is non like-kind property that you receive during the 1031 exchange transaction. For example, if you receive cash payment at any point during the exchange process, that would be considered boot, and would jeopardize your exchange. Here are some common ways that 1031 exchangors may receive boot during a transaction:
IOUs, Promissory Notes, Seller-Backed Financing. If you are selling a 1031 exchange property and the buyer offers to pay some of the purchase price with a promissory note or IOU, that would be considered boot.
Large Mortgage or Deed of Trust. If your mortgage or deed of trust is so large that your exchange funds are not fully applied to the purchase, you may receive a surplus or unused exchange funds. This would be considered boot.
Non Like-Kind Property Included in the Purchase. If you purchase a condo that comes fully furnished, the furniture included would likely be considered non like-kind personal property. You want to make sure you pay for these items with non like-kind exchange funds.
Contact CPEC1031, LLC
Contact CPEC1031, LLC today for all of your 1031 exchange needs! Our team of qualified intermediaries has over twenty years of experience facilitating exchanges of investment real estate in Minnesota and across the United States. If you are a taxpayer looking to defer your capital gains taxes on the sale of qualifying real property, a like-kind exchange may be a good option for you! We can guide you through the whole process and answer any questions you might have. Give us a call today at our downtown Minneapolis offices to learn more about the exchange process and whether your property is a good fit.
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.
© 2024 Copyright Jeffrey R. Peterson All Rights Reserved