Discussion:1031 Exchange - All Cash Received as Boot?
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Discussion Forum Index --> Advanced Tax Questions --> 1031 Exchange - All Cash Received as Boot?
Discussion Forum Index --> Tax Questions --> 1031 Exchange - All Cash Received as Boot?
| 9 May 2008 | |
| I've done lots of tax returns and advance planning with 1031 exchanges but haven't come across a scenario quite like this - a client is selling a rental property (held for 10 years) and will have about $2.7 million in capital gains, although he only stands to receive about $2 million cash at the close of escrow (previously refinanced). He also has about a $2.2 million capital loss carryover that will offset the bulk of the capital gain, but he wants to exchange enough of the equity that he'll absorb his capital losses and not pay any current taxes on the excess $500k gain. My initial thought was that he'd have to take $500k out of the escrow to be used in an exchange, but then I went through the mechanics and realized that even if he pulls out ALL the cash proceeds from the sale, he'd only have $2 million in taxable boot to report as capital gain (still less than his carryover losses, so no current tax effect). He'd still need to buy something as an upleg to avoid having to report a lot of mortgage boot (about $1.2 million paid off on the downleg property), but I'm thinking that I can just tell him to buy something worth at least $1 million with as little cash down as he can get away with and he'll be ok.
Does this sound like it makes sense?? Thanks! | |
RoyDaleOne (talk|edits) said: | 9 May 2008 |
| No.
2.7-2=.7 (gain remaining after boot) 2.7-2.2=.5 max gain I have never used the terms up-leg and down-leg, except talking about my trousers. I suggest everyone use standard tax terminology when posting a question to avoid confusion on the readers part. Am I missing something here? | |
| 9 May 2008 | |
| Cal, you really need to analyze boot from the standpoint of how much cash the QI is giving your client to equalize the consideration for the exchange. | |
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