Tips for Avoiding Boot in a 1031 Exchange

Cash Boot in a 1031 Exchange

When it comes to 1031 exchanges, boot is defined as any non like-kind property that the taxpayer receives from the sale of their relinquished property. Any boot received will be subject to tax, so it’s important to avoid boot in order to ensure your 1031 exchange is completely tax-free. In this article, we are going to offer up a few tips for avoiding boot in a 1031 exchange of real estate.

Security Deposits, Rent & Tax Prorations

Security deposits, rent and tax prorations are all items that can trigger boot in a 1031 exchange. The best way to deal with these items is to pay these items outside of closing and keep them off the closing statement.

On the replacement property side of things certain closing costs related to the new mortgage or deed of trust may trigger boot as well. If possible, avoid using the exchange funds to pay for these items.

When in Doubt

If you have any doubts about whether certain expenses will trigger boot, it’s always best to play it safe and pay those expenses in cash, in a separate transaction, outside of closing. You can also consult with a qualified intermediary about your situation and see how you can best avoid boot in your transaction.

Minneapolis Qualified Intermediary

Commercial Partners Exchange Company has been providing 1031 exchange accommodation services to taxpayers for decades. Our qualified intermediaries have the industry knowledge and experience to help advise you on your 1031 transaction. Contact our 1031 exchange professionals today to learn more about the tax-saving benefits of a 1031 exchange. Our office is located in downtown Minneapolis, but we serve clients across the country!

  • 1031 Hotline: If you have questions about boot in a 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.


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