Boot in 1031 Exchange refers to cash or other non-like-kind property received as part of a 1031 exchange.
- Boot in 1031 Exchange refers to cash or other non-like-kind property received as part of a 1031 exchange.
- The boot can trigger capital gains tax on selling the original property in a 1031 exchange.
Suppose an investor owns a rental property worth $500,000 and wants to defer paying capital gains tax on the sale of this property by doing a 1031 exchange. They find a new investment property worth $700,000 and agree to purchase it using a 1031 exchange. The investor provides $200,000 in cash as a down payment, and the seller provides financing for the remaining $500,000. The $200,000 in cash is considered a boot in this 1031 exchange.
- Keep the amount of boot received as low as possible to minimize the potential tax implications.
- Consider the value of the new investment property compared to the original property to ensure that it is of like-kind.
- Work with a qualified intermediary and an experienced real estate attorney to ensure that the 1031 exchange is structured correctly.
- Do not accept boot unless it is necessary to complete the 1031 exchange.
- Consider alternative structures, such as a reverse 1031 exchange, if the amount of boot received is significant.
- Seek professional advice from a tax specialist to determine the tax implications of accepting boot in a 1031 exchange.