Swapping real estate? Avoid mortgage ‘boot’ — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily
  • LinkedIn
  • YouTube
  • Twitter
  • Facebook
  • Google+

Swapping real estate? Avoid mortgage ‘boot’

Get PDF file

by on
in Small Business Tax

Q. I’m contemplating a 1031 exchange of real estate properties. If the building I’m giving up is subject to a mortgage, will I owe any tax? M.R., Manchester, N.H.

A. It depends. If you’re relieved of mortgage liability, the debt reduction is generally treated as taxable “boot” received in the exchange. But you must recognize the boot only to the extent that the debt relief exceeds the debt you’re incurring.

Example: If you transfer property with a $100,000 mortgage in return for a property subject to a $125,000 mortgage, the debt relief is completely canceled out.

Tip: A Section 1031 exchange is allowed only for “like kind” properties used for business or investment purposes.

Related Articles...

Leave a Comment

Previous post:

Next post: