What is Mortgage Boot in a 1031 Exchange?

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. 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.

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

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

What is a Simultaneous 1031 Exchange?

1031 like-kind exchanges come in several different forms. One particular type is called the simultaneous exchange. In this article, we are going to talk about simultaneous 1031 exchanges – what they are and when they can be useful.

Simultaneous 1031 Exchanges

A simultaneous exchange is a concurrent 1031 exchange in which a taxpayer disposes of their relinquished property and immediately acquires the new replacement property. This is also commonly referred to as a drop and swap exchange.

However, most 1031 exchanges are not structured as simultaneous exchanges, but rather as delayed exchanges. This is simply because most taxpayers are not able to line up the selling of their relinquished property and the purchase of their replacement property. A delayed exchange allows you to sell your relinquished property, and then acquire your new replacement property at some point over the following 180 days (the first 45 of which are set aside for identification of the new replacement property). This gives taxpayers a lot more flexibility, which is why it’s the preferred method for exchanging real estate under section 1031.

1031 Exchange Accommodator

At CPEC1031, our 1031 exchange accommodators have decades of experience helping taxpayers with their like-kind exchanges of real property. Whether you’re doing a forward exchange, a reverse exchange, or a build-to-suit construction exchange we have the knowledge and experience to walk you through the process and help you defer your capital gains taxes. With offices around the country, we facilitate 1031 exchanges across the United States. Contact us today at our Minneapolis office to set up an appointment with one of our qualified intermediaries.

• Start Your Exchange: If you have questions about simultaneous exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

The Difference Between Tax Free & Tax Deferred

Many people think that a 1031 exchange is “tax free.” This is not true. What a 1031 exchange offers is tax deferral. But what exactly does that mean? In this article, we are going to talk about the difference between tax free and tax deferred when it comes to a 1031 exchange.

Is a 1031 Exchange Tax Free?

To the question at hand – is a 1031 exchange completely tax free? No. 1031 exchanges are not tax free in the sense that you never have to pay taxes on the capital gains from your sale. Instead, 1031 exchanges allow you to defer your capital gains taxes on the sale of real property. There is an important distinction we need to make here between the terms “tax free” and “tax deferred.” Tax free implies that you never have to pay taxes. That does not describe a 1031 exchange. Tax deferral implies that you are still responsible for the taxes in question, but aren’t responsible for paying them until some point in the future.

Deferring Taxes Indefinitely

Although a 1031 exchange is not tax free, with a good strategy and enough foresight, you can potentially defer your taxes indefinitely by continually exchanging into new replacement property over time.

MN 1031 Exchange

Contact a 1031 exchange qualified intermediary today to learn how to defer your capital gains taxes on the sale of real estate. At CPEC1031, our qualified intermediaries have decades of experience facilitating exchanges of all shapes and sizes. Contact our team of qualified intermediaries today to set up an appointment over the phone or in person at our downtown Minneapolis office.

• Start Your Exchange: If you have questions about 1031 exchange tax deferral, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

An Update on 1031 Exchanges & the GOP Tax Bill

There are a lot of questions surrounding the new GOP tax bill, which could be up for a vote as soon as this week. In this article, we are going to talk briefly about the current status of the new tax bill and its potential impact on like-kind exchanges.

The GOP Tax Bill

Right now, the House and Senate are working to reconcile the differences between the two bills that passed each chamber earlier this year. Things are moving at a fast pace, as the GOP hopes to have a vote by Christmas.

Impact on Section 1031

So what does the new bill say about section 1031 and like-kind exchanges? The good news is that both versions of the bill (from the House and Senate) keep the like-kind real estate exchange intact. That means taxpayers will still be able to defer their taxes on the sale of real property moving forward.

However, both bills eliminate the personal property 1031 exchange. That means exchanges of aircraft, business equipment, livestock, artwork, coins, precious metals, and all other forms of personal property would be excluded from 1031 exchange treatment. This is a big change to section 1031 and the Like-Kind Exchange Coalition has called for a restoration of personal property exchanges to the bill. This has, so far, proved unsuccessful.

Minnesota Qualified Intermediary

Since the bill is still being debated, it’s a little too early to say with certainty what will and will not happen. That being said, if you have any questions about this new tax bill and its potential impact on the like-kind exchange, don’t hesitate to reach out to a qualified intermediary with your questions.

• Start Your Exchange: If you have questions about how the GOP tax bill might impact your 1031 exchange, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

Tips for Avoiding 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

CPEC1031 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!

• Start Your Exchange: 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.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved