Cash boot in a 1031 exchange refers to the cash received as part of a real estate exchange, which is not considered a like-kind exchange under the IRS 1031 guidelines. The cash boot is taxed as a capital gain.
Key-Takeaway
- Cash boot refers to cash received in a real estate exchange that is not considered a like-kind exchange under IRS 1031 guidelines.
- It is taxed as a capital gain.
- The amount of cash boot can affect the tax deferred benefits of a 1031 exchange.
Example
A property owner sells a property for $500,000 and receives $50,000 in cash as part of the sale. In a 1031 exchange, the $50,000 would be considered it and would be taxed as a capital gain.
Tips
- Minimize the amount of cash boot by using an intermediary to facilitate the exchange.
- Consider using a qualified intermediary to handle the exchange and ensure compliance with IRS guidelines.
Advice
- Consult a tax advisor or real estate professional before conducting a 1031 exchange to understand the tax implications and ensure compliance with IRS guidelines.
- Be aware of the potential impact of cash boot on the tax deferred benefits of a 1031 exchange.
Recommendations
- Plan ahead and structure the exchange to minimize the amount of cash boot received.
- Consider alternative exchange options, such as a delayed exchange or a reverse exchange, to further minimize the amount of it received.
