In order to defer all of your capital gains taxes in a 1031 exchange, it’s important to avoid receiving boot. But boot can come in many different forms. In this article, we are going to walk through the types of boot you need to avoid at all costs in a like-kind exchange of real property.
Cash Boot
The most common form of boot is cash boot. If you receive any cash during the exchange process, that cash is considered boot and will be subject to capital gains taxes. If you accidentally receive cash boot, you can still do a partial 1031 exchange, but you want to aim for 100% tax deferral to get the most benefit. Working with a qualified intermediary can help you avoid receiving any boot.
Debt Liability Boot
When you exchange into a new replacement property, you want to ensure that your replacement property is equal to or greater than your relinquished property in value, equity, and debt. If it fails to meet these criteria you may receive debt liability boot, which will result in less than 100% tax deferral.
Non-Customary Transactional Costs Boot
Non-customary transactional expenses that are unrelated to the replacement property closing can also be considered boot. It is important to pay any taxes, rent prorations, and other charges with cash at the closing table in order to keep those off of the closing statement and avoid boot.
Minnesota Qualified Intermediary Company
At CPEC1031, we have been helping taxpayers throughout Minnesota and the greater United States with their 1031 exchanges of real estate for over two decades! We have the knowledge and experience needed to ensure your exchange is a success. We can work with you throughout the entire process and answer all of your questions along the way. Contact us today to learn more about the 1031 exchange process and how we can help facilitate your 1031 exchange. We are located in the heart of downtown Minneapolis but serve the entire state of Minnesota as well as the entire United States.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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