To boot or NOT to boot?!

[Sharon Carson]

My property is currently listed for sale.  On one hand, I want to do a 1031 exchange, as I'm faced with an enormous Capital Gain.  

However, I have $154k loan on the property.  It will get paid off. 

BUT, to qualify for the 1031 replacement property as EQUAL in value, I will need to get a NEW loan for that $154k.  

My issue is:  HOW!?  I'm retired, with NO substantial income, except the Rental income!!  Unless I'm missing something, I would have to find a "hard money Lender." With interest rates as they are, this is NOT an appealing option!

If I do NOT replace that $154k loan, it would then be considered "BOOT".  (Correct?)  As such, I must pay taxes on it.  

Would it be better to just eat it and pay the taxes on that boot, or go with that "Hard money" Lender's rates?  Again, I show hardly any income, so how can I even do a refinance once the 1031 is complete? 

[Jon Taylor]

Sharon,

The amount of gain and potential tax liability will largely determine the best path forward. There are creative ways to replace your existing loan.

As @Payton Haight noted, the DSCR option could help you qualify without the income. Another option could be to borrow the $154K against another asset—such as your primary residence—and bring cash into the exchange to cover the debt.

You might also explore a structured investment like a Delaware Statutory Trust (DST), provided you're working with an advisor or registered representative who has access to that market and determines it's suitable for your financial situation.

Ultimately, it starts with a clear understanding of your tax liability. If your goal is to protect and grow your real estate portfolio, walking away from the 1031 option could set you back years.