Can I Receive Any Cash Proceeds in a 1031 Exchange?

Some of the most common 1031 exchange questions we hear are about cash. In this article, we’re going to talk about the drawbacks of receiving cash in a 1031 exchange of real estate and how to defer all of your capital gains taxes.

Cash Boot

The short answer is that you want to avoid receiving cash at all costs during a 1031 exchange.

Any cash received during the like-kind exchange process is considered “boot” and is taxable. Receiving cash during the course of your 1031 exchange defeats the purpose of the exchange itself. In a like-kind exchange you want to defer all of your possible capital gains taxes. In order to do that, you need to move all of your cash proceeds into a new replacement property (and also meet various other technical benchmarks). If done correctly, you can avoid a huge tax bill when selling property.

If you do end up receiving cash during the exchange process, you can still do a partial 13031 exchange, wherein you are able to defer part of your capital gains taxes.

1031 Exchange Accommodators

1031 exchanges are a great way to save money on taxes when you sell real estate. The qualified intermediaries at CPEC1031 have twenty years of experience conducting 1031 exchanges in Minnesota and around the country. Give us a call today to get your 1031 exchange started and defer your capital gains taxes on the sale of real property. Our intermediaries are available to answer your questions and advise you on all the details of your like-kind exchange.

• 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.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

The Many Forms of Boot in a 1031 Exchange

As we’ve discussed before, you want to avoid receiving boot at all costs in your 1031 exchange. But many people don’t realize that boot can come in several different forms. In this article, we are going to explain the many forms that boot can take in a 1031 exchange and how to avoid each one.

Cash Boot

Cash is the most common type of boot. Essentially, any cash that you receive during the 1031 exchange process is considered boot. You then need to pay capital gains taxes on that cash boot, which is exactly what you want to avoid in a 1031 exchange of real estate. Your exchange won’t necessarily fail if you receive cash boot, it just won’t be a completely tax-deferred exchange.

Debt Liability

Cash is not the only form of boot you can potentially receive in a 1031 exchange. If your debt goes down when you exchange into your replacement property, that can also be considered taxable boot. That’s why it’s important to make sure your replacement property is equal to or greater than your relinquished property when it comes to debt.

Non-Transactional Costs

Rent prorations, tax prorations, and any other charges to the borrower that are unrelated to the closing of the replacement property can also be considered boot. Bring cash to the closing table and use it to pay these costs so you don’t recognize any gain on them.

Minnesota Qualified Intermediary Professionals

For 20 years, CPEC1031 has been helping people with their 1031 exchanges from start to finish. Our qualified intermediaries are proficient in facilitating 1031 exchanges of real estate. Whether you’re interested in a forward exchange, a reverse exchange, or a build-to-suit exchange – we can help. Contact us today at our Minneapolis office to get your 1031 exchange up and running. We work with clients in Minnesota and across the country.

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

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

3 Workarounds to Avoid Boot When Financing a 1031 Exchange with a Note

Can you do a 1031 exchange and take back a note to finance the buyer’s purchase? That’s our topic for today’s article.

Workarounds

Receiving a note or contract for deed may trigger boot. Here are a few potential workarounds:

• You can use a note and have the seller bring the loan money to the closing so the loan is not funded with the net proceeds from the sale. This way all of the funds can go directly into the 1031 exchange account.

• You can run the note of contract for deed in favor of the qualified intermediary. This insulates the person doing the exchange from receiving any boot. Then, prior to closing on the replacement property, you can buy the note from the intermediary so there is cash in the 1031 exchange account.

• If the replacement property seller is willing to accept the note as partial payment, it might be possible to allonge the note together with additional cash consideration.

1031 Real Estate Exchanges in Minnesota

CPEC1031 is one of the most experienced 1031 exchange companies in Minnesota – having just celebrated twenty years in business. Our team of qualified intermediaries helps clients across the country with their 1031 exchanges of real property. A 1031 exchange can save you a lot of money in capital gains taxes, and a qualified intermediary can make sure that you have all of your bases covered during your exchange. Contact us today at our downtown Minneapolis office and learn more about the tax-saving benefits of the 1031 exchange!

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

Defer the tax. Maximize your gain.

© 2018 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

Boot in a 1031 Exchange - What it is & How to Avoid it

In this 1031 FAQ video, Jeff Peterson explains what boot is in a 1031 exchange and how to best avoid it. Watch more 1031 educational videos here.

• Start Your 1031 Exchange: If you have questions about boot in a 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