** State Capital Gain s Tax varies by state and income level, 5% is just an estimate used as the default above. /President, Reverse 1031 CORP. However, if you sold your relinquished property in. Cash boot occurs when the cash received from the sale of the relinquished property is greater than the cash paid for the purchase of the replacement property. ” In other words, you used your exchange funds and acquired something of value that did not qualify in the terms of the 1031. Looking for 1031 exchange resources and tools? David Moore, Equity Advantage 1031 exchange expert, provides the best concepts, resources, and calculators. The “three-property rule” and the “200% rule” are ALTERNATIVE ways or rules under which to designate or identify the Replacement Property, and you only have to satisfy one of the rules to have a valid 1031 exchange. A 1031 exchange boot can include any item in the trade that is not of the "like kind" as defined under section 1031 of the IRS tax code. There are many guidelines that you have to be aware of when doing a reverse like-kind exchange. For those who haven’t done a 1031 exchange before, things can quickly get confusing. g. In the above example, the Exchanger can add $100,000 of cash to offset the mortgage boot. Cash boot. Calculating the cost basis for a 1031 exchange is similar to calculating the cost basis on the sale of a single home up to a point. $ 7,273. You may offset mortgage boot with cash, but you cannot offset cash boot with additional mortgage. WASHINGTON —– Today the Treasury Department and Internal Revenue Service issued final regulations relating to section 1031 like-kind exchanges. One option is to set up a tenant-in-common purchase on the Replacement Property with two co-purchasers: (1) 1031 LLC buyer; and (2) Non-1031 buyer; each with a proportionate ownership percentage based upon the money each contributes for the down payment. In a nutshell, section 1031 allows you. EisnerAmper - Tax Trap Resulting from Debt in an IRC Section 1031 Exchange. 1031 Investor Center. Includes state taxes and depreciation. A 1031 exchange is not an all or nothing deal, and you can complete a partially tax deferred exchange; but you will probably recognize gain to the extent that you buy down in value. Definition. Given the. CPEC1031, LLC has decades of experience in the like-kind exchange industry. ) Cash boot is. About the Author: Xchange ExpertThere are many terms that crop up during a 1031 exchange of real estate. The 95% rule. Equals Minimum Down: $225,000. It’s generally unlikely to find a property that you want to buy (an out-of-state or California replacement property) that is owned. This starts from the date of the sale of the relinquished property. I. Self Storage Facilities 1031 Exchange Timeline. 1031 – Section 1031 of the Internal Revenue Code (I. S. Because capital gains taxes may have to be. Our qualified intermediaries are well respected in Minnesota and across the country. We’ll be happy to help you with calculating your 1031 Exchange, please give us a call 215-489-3800. Tax. In essence you Defer the gain by transferring it to. Paying Fees with the 1031 Proceeds. 1. § 1031 in a Nutshell. Either transaction requires careful planning to avoid breaking the law. What is a 1031 exchange “boot,” and what should you do to avoid one? Contrary to a somewhat popular misconception, a 1031 exchange isn’t an all-or-nothing proposition. Equity Advantage generates your 1031 Reverse Improvement Exchange documents and sends them to all of the appropriate parties. That's why we're giving you the same 1031 exchange calculator our exchange experts use to help investors make informed decisions. A enters $40,000 on line 20, the smaller of line 15 or line 19. Making the long-term capital gain portion $97,500. In that context, the net amount paid to the seller for the property at closing is simply. For investors, there are two major benefits to a partial 1031 Exchange, cash and reducing debt levels. If you make a profit on the property; buy for $100,000 and sell for $200,000 you would pay taxes on the profit at the long-term capital gains rate. Typically, boot comes in the form of cash. A 1031 exchange is a transaction that enables investors to use the proceeds from one investment property to fund the purchase of similar (like-kind) replacement property while deferring the payment of capital gains taxes and depreciation recapture. O’Connell will have to pay taxes on the $10,000. (800) 818-1031; info. Cash, personal property, or a reduction in the mortgage owed after an exchange are all boot and subject to tax. ”. 1. For example, at an income tax rate of 25%, you would owe $9,090. First and foremost, you may want to talk with your CPA or tax advisor about this. For example, a taxpayer may identify a hotel it will acquire for $1,000,000 as replacement property, even if the. (=) Estimated Taxable Gains $2,158,000. CLICK HERE TO OPEN TAX CALCULATOR. Contact us today at our Minneapolis office to learn more about our full range of services and see how we can help you through the details of your next like-kind exchange! Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031. Boot is any portion of the proceeds from a 1031 exchange that you do not reinvest in a replacement property. If there is no 1031 exchange, it is the difference between the net sales price and the adjusted cost basis. If you utilize a 1031 exchange and reinvest the proceeds in a $400,000 property while taking on $100,000 in new debt, the difference between the initial mortgage paid off and the new debt is known as mortgage boot. Home About 1031 Exchange Services. Learn the rules, rates, and benefits of 1031 exchanges, and see examples of how. With this rule, the owner can identify an unlimited number of replacement properties with no maximum value, but they must close on at least 95% of their cumulative value in order to qualify for a 1031 exchange. Diversification and sizing. Any boot received is taxable to the extent of the gain realized on the exchange. Use that percentage times the sales price and sales expenses to find the selling price/sales expenses for each asset. 1031 EA, LLC is a division of Plenti Financial and is the accommodator for a 1031 Exchange as required by the IRS. 1031 Permanent Conservation Easement. published June 21, 2023 In the context of a 1031 exchange, “boot” refers to the portion of a transaction that doesn’t meet the tax-free criteria and thus becomes subject to immediate capital. However, the exchanged properties must be held for productive use in a trade. Applying section 1. Just like any other 1031 exchange, a build-to-suit exchange needs to abide by the 180 day exchange period. Cash boot is allowed to be part of a nonmonetary exchange under U. Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031. Rule 2: The exchanger may not receive cash – all the proceeds in the qualified escrow account must be reinvested. Changes to Section 1031 Rules. 63, you would owe tax at your specific income tax rate. Calculator; State Taxes; What's 1031. 25 * total deferred gains of $500,000 = $125,000. 45 / 180 Day Calculator. The regulations provide that: Partial 1031 exchanges are when the taxpayer does not use all the net equity and debt retired in the new property. Fernandez explains how investors can avoid paying tax on proceeds of a sale and how DSTs can be a lucrative option. The transaction gets its name from Section 1031 of the U. The definition of like kind in the realm of real estate is very broad. By doing this you avoid reporting all of ar at least a portion of the taxable gain of the sale on your current tax return. She receives cash which is cash boot, and Ms. You cannot recoup your relinquished property down payment during a 1031 exchange without triggering taxable gain. These documents will contain the bulk of the information you need. The second is the 45-day identification period for finding a new. If you sell your rental property for $350,000, it may seem like a loss, but it is actually a $50,000 gain for tax purposes. Constructive Receipt. In any 1031 exchange you only have 180 days total to complete your exchange. This guide simplifies the time frame for 1031 exchange to its most basic level. Contact us today at our downtown Minneapolis office to learn more about the 1031 process, our services, and to see if you are a good candidate for an exchange. One of the most frequently asked questions to 1031 exchange consultants by people wishing to do an IRC §1031 exchange pertains to the involvement of seller financing. Capital gains tax might result from selling your home, stocks, bonds, commodities, mutual funds, a business, and other similar capital assets. We hope that this worksheet will help with these reporting issues that present difficulties in reporting 1031 Exchanges. Your 1031 exchange transaction should be reported on your Federal income tax return for the year in which your 1031 exchange began. This process can be used to continue growing an investor's wealth while. Cash boot. However, we recognize that almost all Exchanges are different and that. We also offer a 1031 deadline calculator. But if I fudge the number on the "Different Property Received" page, such as entering $25,229 under Promissory Note Received ($20k more than actual), then enter my exchange expenses on next page as $20,851 (which they. 1031 Basics 1031 Exchange Basics 12/16/2019. A Simple Rule to Remember. 2017 Tips for Avoiding Boot in a 1031 Exchange Dec 12, 2017 Dec 11, 2017. 45 / 180 Day Calculator Capital Gains Calculator 1031 Glossary. 15th Street Suite 700. As we move into 2023, it's crucial to understand the updated IRS 1031 exchange rules to maximize your tax deferral benefits. You can have a partial tax deferral if you miss these general benchmarks. This is perhaps the most common question we get regarding 1031 exchanges. Following this rationale, other typical closing costs customarily appearing on settlement statements that may generally be paid without concern of breaching the safe harbor include qualified intermediary fees, direct legal fees, costs of surveys, and environmental inspections related to the exchanged properties. But, even this can get complicated if the taxpayer has to report some 25% rate gain on the 1031 exchange as a result of receiving boot (see below), in which case the Unrecaptured Section 1250 Gain may not be the same as the accumulated depreciation shown on the replacement property depreciation schedule. Given the taxpayer’s intent to receive cash, the best time to receive it is at the initial closing. 45 / 180 Day Calculator Capital Gains Calculator 1031 Glossary. Likewise, if the taxpayer is relieved of any debt resulting from the Sec. These final regulations address the definition of real property under section 1031 and also provide a rule addressing the receipt of personal property that is incidental. Otherwise, boot should be avoided in order for a 1031 Exchange to be. As discussed more fully below, boot can come in many different forms. Certain expenses paid at a closing are considered “exchange expenses” and using exchange funds to pay those expenses won’t result in any tax liability to an investor doing a 1031 exchange. 34,308. 1031 Exchange Calculator. ) allows for an exchanger to defer their capital gains tax and depreciation recapture tax in a like-kind, tax-deferred exchange of real investment properties. Lesser of boot or exchange expenses (Lesser of. Defer the tax. The values generated by this calculator does not constitute tax or legal advice. In this case, you calculate your new basis by subtracting the capital gains deferred ($130,000) from the purchase price of the new property ($500,000), leaving you with a new cost basis of. Forward Exchanges. Section 1031 provides that “No gain or loss shall be recognized if property held for use in a trade or business or for investment is exchanged solely for property of like kind. capital gains and depreciation recapture taxes apply to the $120,000 gain ($585,000 minus $465,000 cost basis). You complete the exchange by purchasing a $500,000 property with a mortgage of $350,000. This can help investors and owners reduce their tax burden. Jun. But like a lot of the tax code, it comes with a list of potentially confusing rules attached. Definition. Give our qualified intermediaries a call today to get your 1031 exchange off the ground. Boot offsetting rules –taxpayer’s will only be subject to tax on the. Property used primarily for personal use, like a primary residence or a second home or vacation home, does not qualify for like-kind exchange treatment. If the seller takes any cash from the sale, that amount becomes taxable boot. Total boot in excess of exchange expenses (Line G - Line I) _____ _____ Carry to Line 15, Form 8824 WorkSheet #8 - Calculation of Basis of New Property for Form 8824, Line 18. In a 1031 exchange, boot is the amount of proceeds you don’t reinvest in a replacement property. Learn how to complete a partial 1031 exchange. In other words, if the 1031 exchange is properly structured, you won't have to pay certain. Sold later absent an 1031 Exchange for $585,000, e. Mortgage Boot. Because capital gains taxes can take a huge chunk of profits, a 1031. Learn what boot is and how it’s taxed in a 1031 exchange. For many, this is a popular – and effective – strategy through which to grow and diversify a real estate portfolio over time. 1031 Exchange Glossary. Defer the tax. A Taxpayer Must Not Receive "Boot" from an exchange in order for a Section 1031 exchange to be completely tax-free. Likewise, if the taxpayer is relieved of any debt resulting from the Sec. non-like kind property you received during the transaction). Home About 1031 Exchange Services. Then, through your qualified intermediary, you purchase the $750,000 property and perform the. The trick is to plan early. 37. And while this all might seem simple, one thing that can make it challenging apart from the rules and timelines is avoiding boot. $32,000 times 25% = $8,000. In the above example, the. even though the exchanger pays tax on the $100,000 of taxable boot, they have "rolled" over $400,000 of the $500,000 of gain into the new property, thus avoiding tax on that $400,000. Mortgage boot is made up of liabilities assumed in the exchange. A Simple Rule to Remember. You can use a 1031 exchange to convert a rental property to a primary residence — or to convert a primary residence into a rental property. Maximize your gain. TT does not appear to calculate on form 8824 the cash received (boot) in a 1031 exchange to a lower priced property. Calculate Capital Gain Tax Due. Also. Receiving cash out of the. The relinquished property is the property given, while the replacement property is the property received. The exchange must be concluded within 180 days of the Relinquished Property (RLQ) sale. $. For example, if you sell a property for $200,000. Understand the process, tradeoffs, and how to determine if it is a good fit for your financial goals. . Information to Send your Qualified Intermediary to Start a 1031 Exchange Oct 10, 2022. Cost of capital improvements info_outline. CLICK HERE TO OPEN BOOT. 3 Things to Remember . 102,000. ** State Capital Gain s Tax varies by state and income level, 5% is just an estimate used as the default above. It is a tax benefit that helps fuel the economy. 45 / 180 Day Calculator Capital Gains Calculator 1031 Glossary FAQs The Napkin Test Testimonials & Case Studies Marketing & Promotional Materials. the qualified intermediary returns to the exchanger $20,000 (cash boot) and endorses the $20,000 note (non-like. Selling price less selling costs. 45 / 180 Day Calculator Capital Gains Calculator 1031 Glossary. For example, let’s say you exchange an apartment building for another apartment building, but you don’t reinvest all of your cash. The following calculator is a useful tool to determine the required amount of debt and equity in the new property. The company’s sizable staff, which includes many Certified Exchange Specialists, goes above and beyond to work with California investors, including offering clients a “letter of assurance” that. It sells for $650,000. 400 W. $ 7,273. $300,000 acquisition cost less $125,000 deferred gains = new basis of $175,000. The criteria for a 1031 exchange is that the property must be held for investment or for use in a trade of business. A 1031 exchange is a real estate investing tool that allows investors to exchange an investment property for another property of equal or higher value and defer paying capital gains tax on the profit they make from the sale. Basically, we need to know if the boot taxes would be less than the repair. This is where you can make use of a 1031 exchange and save these dollars from taxes. Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031. of additional equity available to reinvest through a 1031 exchange. This calculator will help you to determine how much tax deferment you can realize by performing a 1031 tax exchange instead of a taxable sale. O’Connell will have to pay taxes on the $10,000. Otherwise, you may have boot in the form of cash. 1031 exchange, the reduction in debt is considered taxable boot as well. In this article, we offer two free calculators to help you through your 1031 exchange. Generally, if you make a like-kind exchange, you are not required to recognize a gain or loss. Quickly calculate the 45 & 180 day deadlines on your 1031 tax exchange. 63 of gain. Net Proceeds from Selling Property $3,008,000. CAPITAL GAIN TAX CALCULATOR. Amount of yearly depreciation info_outline. Read our informative article at 1031. J. The recognition of cash “boot” triggers a taxable event for Taxpayer A. 45 / 180 Day Calculator Capital Gains Calculator 1031. A 1031 Exchange, also known as a "like-kind exchange," is a provision in the Internal Revenue Service (IRS) Code that allows investors to defer paying capital gains taxes on the sale of a property if they reinvest the proceeds from that sale into a similar property of equal or greater value. Here are the steps for a typical Improvement Exchange transaction: A Delayed Exchange is set up through a Qualified Intermediary (QI) like IPX1031. If a 1031 exchange is performed, it is any amount purchased less. However, there are times when you may want to hold back part of the sales proceeds and use the money for another purpose. The 1031 Exchange Equation. 1. Our intermediaries can draft your 1031 exchange documents, answer your questions, and advise you throughout the exchange process. Learn what boot is and how it’s taxed in a 1031 exchange. The taxable amount of the transaction. The professionals find, select, and acquire suitable 1031 Exchange replacement properties. The term “boot” is broadly defined as a taxpayer’s receipt of non-like-kind property in a 1031 exchange. It allows you to replace one investment or business property with a like-kind property and defer the capital gains on the sale if Internal Revenue Service (IRS) rules are meticulously followed. In a sale, tax is paid on the realized gain. 2. Internal Revenue Service Code that allows investors to defer capital gains taxes on any exchange of like-kind properties for business or investment purposes. Any boot received is taxable (to the extent of gain realized on the exchange). Internal Revenue Code, is a way to postpone capital gains tax on the sale of a business or investment property by. Depreciation Recapture Calculator. The Exchangor owns a three apartment buildings in South Carolina. Not sure how to do it on your own?The correct answers are: "2005," "2006" and "whenever you want it to be. However, it is important to note that receipt of boot will not completely disqualify a 1031 exchange. Contact Our Team. Like-Kind Property: Any two assets or properties that are considered to be the same type, making an exchange between them tax free . 15th Street Suite 700. How a 1031 Works. In 2021, Taxpayer A sold the property in a 1031 exchange for $4,000,000 + $500,000 of cash. Property You Are Selling Selling Price of Property Selling. Enter the following information and our calculator will provide you an idea of how a 1031 exchange will work in your situation. Like-Kind Exchange – The means of deferring federal (and, in most cases, state) capital gains and recaptured. Unrecaptured Section 1250 Gain: The unrecaptured section 1250 gain is a type of depreciation-recapture income that is realized on the sale of depreciable real estate . , General Counsel, 1031 CORP. 45 / 180 Day Calculator Capital Gains Calculator 1031 Glossary. 5MM in proceeds and reinvest $1MM into the new property. This rule is rarely used because it’s so difficult to exercise and carries the most risk. Lines 26-38 Not applicable to 1031 exchanges WorkSheet #10 for Buy-Down only. Typical examples of 1031 exchange boot include: 1. = Equity Proceeds $940,000 = Cash Down $940,000. 45 / 180 Day Calculator Capital Gains Calculator 1031 Glossary. 1031 Exchange in California: Rules, Requirements, and the Best Companies to Use. Combining the two requires many years of advance planning to ensure you meet the requirements of both. To that end, you need to determine whether your property qualifies for 1031 treatment. The two most common types of boots that a real estate investor. This leaves you with $130,000 of capital gains to defer. Mortgage Boot. Instead, the replaced property receives the carryover basis of the exchanged property. (2) Based on amount of depreciation taken during ownership of the property. Originally, investors were able to use 1031 exchanges to swap personal and intangible property as well as real estate. Any boot received is taxable (to the extent of gain realized on the exchange). A 1031 exchange is a transaction in which eligible property is exchanged for property of like-kind and gain or loss is deferred for federal income tax purposes. Example 1: $55,000 (–) $15,000 = $40,000 Enter $40,000 (Line 19 (–) Line 23 = Line 24)What's New. One area where taxpayers can potentially slip up during the 1031 exchange process is closing costs. A 1031 exchange boot can include any item in the trade that is not of the "like kind" as defined under section 1031 of the IRS tax code. This then leaves you with a recognized gain of $50,000. 2000-37 was issued, or you’re just thinking. But in a like-kind exchange, gain or loss on the sale of. By doing this you avoid reporting all of ar at least a portion of the taxable gain of the sale on your current tax return. If you’re ready to get involved with a 1031 exchange, call David Moore to get started today. Maximize your gain. 2016 Boot in a 1031 Exchange - What it is & How to Avoid it Oct 6, 2016. In theory, an investor could continue deferring capital. It’s the IRS’ position that the first money out is theirs. If your 1031 exchange fails, you could explore a quality opportunity zone investment to defer tax recognition until 12-26-2026 (with 10% potentially forgiven). WITHOUT a 1031 and WITH a 1031 Exchange (and WITHOUT or WITH "TAXABLE BOOT"). Aug 9, 2022 A Pro Tip for Avoiding Boot in a 1031 Exchange Aug 9, 2022 Aug 8, 2022 What to Do After Your 1031 Exchange of Real Estate Aug 8, 2022 Aug 4, 2022 Why the 1031 Exchange is a Powerful Tool Aug 4, 2022A Taxpayer Must Not Receive “Boot” from an exchange in order for a Section 1031 exchange to be completely tax-free. Sec. 180 Day Deadline: Must. Evaluate boot given and received. e. That cash is boot (i. Minneapolis 1031 Exchange. Minus New Loans: $375,000. Indeed that may not be possible. Reach out to us at our downtown Minneapolis office today to learn more about the 1031 exchange process and get started with your real estate exchange! Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to. (877) 797-1031. Each property is owned by a different LLC, each LLC has the same common single member LLC as it’s member. For example, suppose a real estate investor sold raw land for $1,000,000 and used $800,000 of the proceeds to purchase a shopping center. A 1031 exchange, named after Section 1031 of the U. Oct 17, 2022. Internal Revenue Code, which allows investors to defer capital gains tax on the proceeds of a recently sold investment property by. Discover the benefits and drawbacks of combining a 1031 exchange and installment sale. The following calculator is a useful tool to determine the required amount of debt and equity in the new property. Accruit is the leading, independent, trusted managed service provider of 1031 Exchanges. 2016 Boot in a 1031 Exchange - What it is & How to Avoid it Oct 6, 2016. Regardless, in order to avoid boot, you generally need to secure replacement property that has the same (or higher) fair market value as that of the relinquished property. To avoid taxable boot, the newly acquired property must be of equal or greater value than the relinquished property, and any mortgage on the replacement property should be of equal or greater debt. 0" ) FEDERAL TAX CHART (2021) 0. Avoiding Boot in a 1031 Exchange You can avoid mortgage boot by following the debt reduction principle, a safeguard to help you determine whether you’ve completed a qualifying exchange. For the convenience of our clients, we have put together a simple and free online calculator that will help you determine your 1031 exchange deadlines. This principle states that an investor must take out a new mortgage equal to or greater than what is owed on the relinquished property or replace the debt. Calculate the Realized Amount and New Property Basis. At the termination of the exchange, following the receipt by the taxpayer of all like kind property the taxpayer was entitled to receive, the. Sale Price $2,000,000 Purchase Price $3,000,000. While capital-gains tax rates are currently at historical lows, tax rules require you to recapture the portion of the gain on the sale that relates to allowable depreciation over the period the asset was held. All 1031 exchanges have to be. Quite often people mistakenly get these boots included in their 1031 exchange, and they unfortunately will end up with a capital gain tax bill. A Delaware Statutory Trust (DST) is a trust formed under the Delaware statutory trust law that allows passive, fractional ownership in real estate while qualifying as a “like-kind” real estate replacement property under Section 1031. Ms. Section 1031 (a) (1) states that: “No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or. Rather than have the $10,000 profit taxed as a capital gain, the like-kind exchange allows the gain to be "passed on" to the new property used for business. Assume an investor wants to sell a property for a $200,000 profit. The Exchanger has found a Ranch that he needs to acquire before the three apartment buildings have been sold. Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031. President and CEO Edward Fernandez contributes his thoughts on how investors can avoid getting the "boot" in the 1031 exchange process to Kiplinger magazine. That's why we're giving you the same 1031 exchange calculator our exchange experts use to help investors make informed decisions. We don't think 1031 exchange investing should be so difficult. The Exchange Must be for Like-Kind Property. The taxpayer took depreciation on Property X for the 10 years they owned the property. Use the 1031 Exchange Calculator to estimate net sales available for reinvestment with and without a 1031 Exchange. This is okay when a seller desires some cash and is willing to pay some taxes. “Cash boot” is the receipt of cash and “mortgage boot” (also referred to as debt relief) is a. 1031 exchange, the reduction in debt is considered taxable boot as well. I just finished my taxes but not sure if these calculations are correct. 5(b). In this case, you calculate your new basis by subtracting the capital gains deferred ($130,000) from the purchase price of the new property ($500,000), leaving you with a new cost basis of $370,000. Our office is located in downtown Minneapolis, but we serve clients across the country! Start Your Exchange: If you have questions about boot in a 1031 exchanges, feel free to call me at 612-643-1031. See moreIf there is no 1031 exchange, it is the difference between the net sales price and the adjusted cost basis. Boot is any non like-kind payment received as part of an exchange. In essence you Defer the gain by transferring it to. 1031 exchange investors can exchange into multiple DST investments at the exact amounts needed to satisfy the like-kind replacement requirement. You will be taxed on $86,363. Total boot in excess of exchange expenses (Line G - Line I) _____ _____ Carry to Line 15, Form 8824 WorkSheet #8 - Calculation of Basis of New Property for Form 8824, Line 18. We’ll provide examples of a 1031 exchange boot and also explain boot types and how to avoid unwanted boot in different situations. Section 1031 of the Internal Revenue Code allows an owner of business or investment real estate to sell old property (relinquished property) and acquire new property (replacement property) without paying any taxes on the profit of the sale of the old. The main difference is that the property you’re exchanging into (i. Perhaps the biggest reason that 1031 exchanges fail is that the taxpayer conducting the exchange receives boot during the exchange process. 1031 Exchange Advantage™ is a trade name of 1031 EA, LLC and is not a licensed broker. IRC Section 1031 (a) (1) states as under : Partial 1031 Exchange Example. This is also Cash Boot. The answer is yes. Cost to purchase in 2001 = $135,000. 3%. BOOT CALCULATOR. -30,831.