In a 1031 exchange, you want to do your best to avoid receiving any boot so your exchange is completely tax-deferred. But many people aren’t sure what exactly “boot” is. In this article, we are going to talk about boot in a 1031 exchange – what it is and how to avoid it.
What Exactly is Boot?
In a 1031 exchange of real estate, “boot” means any non like-kind property that the taxpayer receives during the course of the exchange. Ideally, you want to avoid receiving any boot in your exchange. The goal with a like-kind exchange is to defer 100% of your capital gains. If you receive boot, you will recognize at least a partial amount of that gain and the exchange will not be completely tax deferred.
Tips for Avoiding Boot
Because boot can trigger taxable gain, it’s important to do everything you can to avoid receiving it during your exchange.
You want to pay special attention to any taxes, rent prorations, and security deposits during closing. The best course of action is to keep these off the closing statement and pay for them with cash out of pocket to avoid boot. Certain closing costs can also potentially trigger boot. It’s important to consult with a qualified intermediary about these items before your closing.
1031 Exchange Companies in Minnesota
At CPEC1031, LLC, our qualified intermediaries have been working with clients in Minnesota and across the country for the past three decades. Our team can advise you on the details of your exchange, prepare your 1031 documents, and answer any of your questions throughout the process. If you want to learn more about the tax-saving benefits of the 1031 exchange, don’t hesitate to reach out to us today and set up an appointment via phone or at our office in downtown Minneapolis.
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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