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

What is Mortgage Boot in a 1031 Exchange?

If you’re at all familiar with 1031 exchanges, you’ve likely heard the term “boot” before. Boot is something you want to avoid at all costs in order to complete a fully tax-deferred exchange of property. But boot comes in several forms. In this article, we are going to talk about mortgage boot and how to avoid it in a 1031 exchange of real estate.

Triggering Mortgage Boot

Mortgage boot occurs when the taxpayer doing the 1031 exchange is discharged of debt when they sell their relinquished property and the debt is not properly offset.

Avoiding Mortgage Boot

In order to effectively avoid mortgage boot and the trigger of gain in your 1031 exchange, you need to be sure that your discharged debt is offset by one of the following:

• New Debt (of equal or greater value) on the new replacement property.

• Cash contributed for the replacement property that’s equal to the amount of debt relief from the sale of the relinquished property.

1031 Exchange Services

If you are looking to defer your capital gains taxes on the sale of real estate, look no further than the 1031 exchange professionals at CPEC1031. Our qualified intermediaries have decades of experience in Minnesota and around the country with all types of exchanges – from forward to reverse. Having a qualified intermediary on your team is the best way to ensure your 1031 exchange completes as planned. Our intermediaries can draft your 1031 exchange documents, answer your questions, and advise you throughout the exchange process. Call today to chat with our MN qualified intermediaries about your exchange.

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

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

What is “Constructive Receipt” in a 1031 Exchange?

There are many terms and definitions in the realm of 1031 exchanges that can be confusing to anyone outside the real estate or tax industry. In this article, we are going to explain what “constructive receipt” means in a 1031 exchange and offer some tips for avoiding it.

Constructive Receipt

In 1031 exchange terms, “constructive receipt” means that the person conducting the 1031 exchange has obtained control over the sales proceeds (either directly or indirectly). Why is this bad? Because it violates one of the fundamental rules of the 1031 exchange – that you must move all of your exchange proceeds into a replacement property.

When you effectively receive your sales proceeds you have just received income that is subject to capital gains taxes. This is exactly what you’re hoping to avoid when conducting a 1031 exchange.

The Role of the Qualified Intermediary

One of the many benefits of working with a qualified intermediary during your exchange is that they can insulate you from receiving any of the net proceeds from the sale of your relinquished property. They do this by holding the net proceeds for you during your exchange period and transferring them over to the replacement property at the time of closing.

Twin Cities 1031 Exchange Services

The Minnesota qualified intermediaries at CPEC1031 have been helping taxpayers with their 1031 exchanges for decades. If you’re looking to defer taxes on the sale of real property, contact us today for help with your exchange. Our intermediaries can prepare all the necessary documents for your exchange, and advise you on best practices every step of the way. Contact us today at our downtown Minneapolis office to get started with your exchange.

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

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved