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Vince Light
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Some help trying to wrap my head around 1031 with boot involved

Vince Light
Posted Jun 7 2023, 18:55

Hello everyone!

I am looking for some help trying to wrap my head around the complexities (to me, anyway) of a  partial 1031 with boot being pulled out. Here is the situation...

Currently close to closing on the sale of an investment duplex property in Texas. We did a cash out refinance on this property a couple of years ago and used the proceeds for both improving the duplex as well as acquiring and setting up a separate STR. That STR resulted in some resulted in some extra debt that we are now selling the duplex for in order to clear out from. We chose to sell the duplex and have a buyer... So not questioning the wisdom of selling that (I know it is horrible timing but it is what it is). That sale is going to result in a hefty gain since I have owned the property for 20+ years.

The basic numbers are:

Original 2001 purchase price: $155k

Sale price: $750k

Current mortgage to pay off: $315k (included approximately $100k original balance due plus $230k cash out) 

Amount due to me after sale: $345k

Additional debt to pay off: $90k

I am also planning on keeping an emergency fund cushion from the sale proceeds.: $TBD

So after laying all this out there... I am trying to figure out a 1031 into a new property fits into the picture... 

My understanding of 1031 with a boot is that the boot is taxed. The costs to sell and original $100k from before the cash out refinance are not taxed (I know additional improvement expenses and such can also be deducted but will deal with a tax professional for that). For the sake of simplicity, let's just say I will have a $550k gain. 

Let's say I want to use some of the remaining proceeds to put a 20% down on a $350k property ($70k). would the new $350k debt be deducted from the $550k gain for calculating 1031 tax savings? Or would only the $70k I put as down payment? If I am only re-investing that $70k from the gain, what are the tax ramifications?

See there... I just got my brain tied in knots again trying to figure out how to even explain the s(h)ituation...

Any help in clarifying would be greatly appreciated.


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