Tax on Boot for 1031 Exchange

[David Ellis]

I have another question for the group. I want to know how the boot will be calculated for  buying a replacement property that  is less than the sold property. For instance, I bought a property 10 years ago for $155,000. I'm now selling it for $165,000. I will net about 60k from the sale. I want to buy a property for $100,000. I know that is less than the property I sold so I will have to pay tax on the different. My questions are, how do I calculate the "boot"? What tax is applied to the boot? Is it just my normal tax rate? Do I pay any tax on the depreciation when I'm taxed for boot? Thanks for your help.

David.

[Dave Foster]

@David Ellis, There isn't a lot of guidance regarding the distinction between boot from gain and boot from depreciation.  The intent when you 1031 is to carry forward the basis on the old property so in most cases I see boot is treated as gain first not depreciation.  But I've seen it treated the other way as well.  Your accountant will have a preference.  It is taxed at whatever the rate would be for that type of gain.  Since it appears to be capital gain it would have a range depending on your agi from 0% - 20% federal.   If your acct prefers you to treat it as a recapture of depreciation first it would be be taxed a 25%.