Steamboat Springs 1031 Exchanges

The term boot can be more easily understood through differentiating between cash and mortgage boots. Either a mortgage or cash boot are the result of not exchanging one property for another of similar value. The result of this difference is the boot, which is a taxable item. 1031 exchanges are designed to be tax-free so when boot is involved the deal no longer becomes entirely tax-free. The amount of net boot received is understood as recognized gain, which is subjected to taxation.

Cash boots can be either in the form of cash or any other type of personal property. To make up for the difference in finding 2 houses of exact like value, cash boot is given. The way to avoid receiving a cash boot would be by reinvesting all the sale proceeds into the replacement property.

Mortgage boots can either paid out or received. You may be responsible for paying a mortgage boot when you need to pay debt on the replacement property. On the other hand, you may receive a mortgage boot when you are relieved of debt on the replacement property. If you are not interested in paying taxes on a mortgage boot you have two options to avoid it. If you have a larger mortgage on you replacement property this will naturally avoid you receiving mortgage boot. You can also invest your own money in the new property to make up the difference in the purchase price.

If your replacement property is of like kind or valued at a greater price, and you invest all the profit from your relinquished property into your replacement property you should not receive any boot. 1031 exchanges are based upon the idea of a tax-free exchange. The concept of boot eliminates the tax-free nature of the exchange, yet can still be beneficial in certain circumstances. Understanding the various possibilities of boot within 1031 exchanges can help determine if performing an exchange is the right path for you.

We are happy to help you in with 1031 exchanges, but we also rely on the experts to help make sure this is a smooth and painless process. While contemplating benefits of 1031 exchanges we strongly encourage you to consult a tax official to discuss any unanswered questions or special circumstances, which may apply to you specifically.

Jon Wade  – Broker Owner  Colorado Group Realty, LLC
970-819-6930 or jon@mybrokers.com
509 Lincoln Ave Steamboat Springs, CO 80477