When you’re doing a 1031 exchange, your basis is transferred to the new replacement property. The first dollars off the table are boot. If you buy down in value on your replacement property, you’ll receive boot. If you take receipt of cash or any other non-like-kind property during the exchange process, that’s taxable boot. If you over-borrow and put too much debt on the replacement property (resulting in cash coming back to the buyer), that’s taxable boot.
Let’s imagine you do a 1031 exchange into a DST (Delaware Statutory Trust). The trustee of the DST exercises its option to suck the property up into a REIT via a 721 contribution. Now let’s say that you held that property for 4 or more years. At that point you would own a partnership interest in an UPREIT. When you’re redeeming a partnership interest you get to pick which part of the partnership interest you would like to redeem first. The first bit of interest you want to redeem is that which has basis. This allows you to partially recoup your basis on the property, thus mitigating your tax risk.
Defer Your Capital Gains Tax Burden
Find a qualified intermediary to help with your next 1031 exchange of like-kind real estate by contacting the team at CPEC1031, LLC. We have more than twenty years of experience in the 1031 exchange industry. We can put our experience to work on your next 1031 exchange and help ensure that you are able to defer 100% of your capital gains tax burden. Our intermediaries are here to help you through every step of the exchange process – from the sale of your relinquished property to the acquisition of your replacement property.
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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