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.