1031 Exchange Question - Posted by MikeW

Posted by Bob Smith on July 24, 2007 at 14:41:00:

It’s the added cash that eliminated your boot, not the delayed exchange. For example, you sell a $200k property with $100k debt (ignoring transaction costs). You must add at least $100k in cash in order to trade up in value. Adding cash to the deal offsets debt relief (mortgage boot) in the property you sold.

1031 Exchange Question - Posted by MikeW

Posted by MikeW on July 23, 2007 at 12:08:11:

I am doing a 1031 exchange on a property, I understand I have to move the deprecation into a new property and I can go into a bigger property, but can I got 2 exchanges into 1 property, and or vise versa 1 property exchanged into 2?

Thank You

Yes and Yes - Posted by Frank Chin

Posted by Frank Chin on July 23, 2007 at 12:54:06:


You can go one into two, or two into one. Taxes are totally deferred if the upleg property(ies) are greater in value, and the mortgages are larger.

A relative of mine 1031 a “free and clear” 3 family into two SFH, at 50% down, taking mortgages at 50% FMV.

Frank Chin

Re: Yes and Yes - Posted by Dave T

Posted by Dave T on July 23, 2007 at 23:03:49:


In a delayed exchange, there is no requirement to trade up in debt. You are allowed to replace debt on the relinquished property with cash when acquiring the replacement property.

There are only two general requirements for a delayed (Starker) exchange to be fully tax deferred: (1) Trade up in value, and, (2) apply all off the exchange proceeds to the replacement property acquisition.

As a practical matter, since we are trading up in value, we would most likely place a larger debt on the replacement property than we had on the relinquished property, but failing to do so does not disqualify the exchange.

Re: Yes and Yes - Posted by Frank Chin

Posted by Frank Chin on July 24, 2007 at 04:15:02:


As i recall, and unless the laws changed, net mortgage relief is considered “boot”, and taxable. So I always thought the mortgage should be larger to avoid the issue of “net mortgage relief”

Frank Chin

Re: Yes and Yes - Posted by Dave T

Posted by Dave T on July 24, 2007 at 13:12:08:

I we are doing a direct (simultaneous) exchange, I give you the deed to my property, you give me the deed to your property, AND be each assume the existing debt on the other’s property. If the debts are not equal, one party could receive debt relief. If so, then the party receiving the debt relief would have taxable mortgage boot.

In the delayed exchange, I sell my relinquished property, then purchase a replacement property via a qualified intermediary in a separate transaction. During the settlement on the relinquished property, some portion of the sale proceeds are used to pay off any existing liens. Therefore, since I paid off the existing debt, I have no opportunity to receive debt relief, even if I pay all cash for the replacement property.

There is no mortgage boot in a delayed exchange. As long as I trade up in value and apply all the exchange funds to the replacement property acquisition, the exchange is fully tax deferred.

Re: Yes and Yes - Posted by Natalie-VA

Posted by Natalie-VA on July 24, 2007 at 09:52:00:

You can replace that “boot” with cash. I did one last year and the replacement property has no mortgage even though the relinquished property did. We traded up in value and paid cash for the difference.


Re: Yes and Yes - Posted by matx

Posted by matx on July 24, 2007 at 08:51:51:

The laws are still the same and it’s “debt boot” and taxable. (We’re in the middle of another stressful exchange…)