What is Mortgage Boot in a 1031 Exchange?

 Mortgage Boot

If you’re at all familiar with 1031 exchanges, you’ve likely heard the term “boot” before. Boot is something you want to avoid at all costs in order to complete a fully tax-deferred exchange of property. But boot comes in several forms. In this article, we are going to talk about mortgage boot and how to avoid it in a 1031 exchange of real estate.

Triggering Mortgage Boot

Mortgage boot occurs when the taxpayer doing the 1031 exchange is discharged of debt when they sell their relinquished property and the debt is not properly offset.

Avoiding Mortgage Boot

In order to effectively avoid mortgage boot and the trigger of gain in your 1031 exchange, you need to be sure that your discharged debt is offset by one of the following:

  • New Debt (of equal or greater value) on the new replacement property.
  • Cash contributed for the replacement property that’s equal to the amount of debt relief from the sale of the relinquished property.

1031 Exchange Services

If you are looking to defer your capital gains taxes on the sale of real estate, look no further than the 1031 exchange professionals at CPEC1031 (Commercial Partners Exchange Company). Our qualified intermediaries have decades of experience in Minnesota and around the country with all types of exchanges – from forward to reverse. Having a qualified intermediary on your team is the best way to ensure your 1031 exchange completes as planned. Our intermediaries can draft your 1031 exchange documents, answer your questions, and advise you throughout the exchange process. Call today to chat with our MN qualified intermediaries about your exchange.

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

Defer the tax. Maximize your gain.

 

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