A 1031 exchange is not a zero sum game. Not everybody wants to do a 100% tax-deferred 1031 exchange. If you want to take some taxable proceeds (boot) during your 1031 exchange, the best time to do that is before the rest of your net proceeds are sent to the intermediary.
In this scenario, you would amend the exchange documents and the closing instructions. Then on the settlement statement, you have the settlement agent (the title company or escrow officer) send the boot to the taxpayer before the rest of the net proceeds are sent to the qualified intermediary. Once the intermediary gets the proceeds, you can’t put your hand in the cookie jar without disrupting your 1031 exchange. The time to receive the boot (if you want to) is when the settlement statement is still in control of the proceeds. Take the boot at the beginning of the closing process if you know what you want.
Alternatively, if you’re not sure how much boot you want to take, you could wait until the exchange period has ended and get your unutilized surplus exchange funds back from the intermediary as taxable boot.
A 1031 Exchange is a Powerful Tool
A 1031 exchange is one of many tools available to taxpayers who want to put themselves in the most tax-advantageous position possible. When you sell your real property in a 1031 exchange you are deferring your capital gains taxes and compounding your wealth over time in a continued investment. As an added bonus, it’s a great way to stimulate the economy and move money into different segments of the real estate market. Learn more about the tax-saving benefits of the 1031 exchange by contacting the qualified intermediaries at CPEC1031, LLC today!
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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