How to Calculate Your Profit from a 1031 Exchange

1031 Exchange Profits

The formula below shows the calculation of the profit from a 1031 exchange:

  • Sale Price - Debt - Cost of Sale = Exchange Proceeds

  • Debt - new debt = boot

  • Exchange proceeds - down payment = boot

  • Boot + boot = total boot

If exchange proceeds are equal to or less than the down payment on the replacement property, boot is zero. If the debt on the replacement property is greater than or equal to the debt on the replacement property, boot is zero. But if the down payment and/ or debt on the replacement property are lower, the differences that appear to be in your favor are taxable boot.

  • Mortgage on relinquished property - Mortgage on replacement property - Additional cash paid by you towards the new property (not including money invested from the sale of your old property) = Net boot received (Not less than zero)

  • Net boot received + any cash received by you in the exchange = Boot received

Terminologies:

Boot - it refers to any non-like-kind property that is exchanged.

Sale Price – it is the sale price or consideration in the deed, the fair market value on the affidavit in the deed or the projected consideration.

Debt - is that which is owed; usually referencing assets owed, but the term can cover other obligations. In the case of assets, debt is a means of using future purchasing power in the present before a summation has been earned.

Cost of Sale – the total spent for a sale.

Minneapolis 1031 Exchange Service

Looking for 1031 exchange services in the Minneapolis / St. Paul area? You’ve come to the right place! The qualified intermediaries at Commercial Partners Exchange Company have over twenty years of experience working with taxpayers on all manner of like-kind exchanges. We can help you through every step of the process – answering your questions and preparing your documents as needed. Contact us today to learn more about how we can help you realize your 1031 exchange goals.

  • 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.

 

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