Cash Boot on a 1031 exchange

[Jason Teague]

I have a tax basis of $150,000 on a rental property that I am selling. I am under contract to sell the property for $215,000, of which after closing, I will realized $200,000.  I have no debt on the property, I own it free and clear.

Question 1:  Am I wrong to assume that I am facing $50,000 in capital gains taxes? $200,000 net from sale - $150,000 tax basis =  $50,000 gain

Question 2:  (Mortgage Boot) Even though I have no debt on the property, do I still need to acquire a replacement property greater than $215,000 (the sale price) or do I only need to acquire a property >/= my net gain of $50,000 to avoid the mortgage boot?

Question 3:  (Cash Boot)  If I finance the new property and put only the $50,000 down via the 1031 exchange and the qualified intermediary then cuts me a check for the remaining $150000, have I avoided the cash boot on the $150,000 because I'm only responsible for the $50,000k in net gains or do I have to put the whole $200000 down on the new property valued >/= $215,000 to avoid the cash boot?

Thank you thank you thank you in advance.   

[Dave Foster]

@Jason Teague, If your QI is that afraid of the statute to give you general guidance then you've got the wrong QI.  That's ridiculously bad customer service.  Sorry that happed to you.  I'd fire em before it gets worse.

1. If your basis is $150K and your net sale is $200K then your gain is $50K.  It will be made up of a mix of capital gain and depreciation recapture.  Yes your accountant has to give you the exact numbers.  But hand grenade math and the right calculations are probably OK for you right??

2. If you do a 1031 exchange and want to defer all tax you must purchase at least as much as your net sale (contract price minus closing cost - $200K) and you must use all of your net proceeds (net sales price minus mortgage pay off - $200K) in the purchase or purchases.  Straight out of the statute.  It doesn't take an accountant to give you this - just a competent QI.

3. See #2 - You can purchase less than you sell and you can take cash back.  But when you do the IRS is saying that any amount you take in cash or any amount you purchase less than your net sale is first going to be profit.  In your example if you get $150K cash at the end of your exchange you will not have saved yourself anything in taxes.  You'll have paid the QI for nothing.

4. From the body of your exchange - If you fail to find replacements or close on your purchase you receive your proceeds back  and you will pay the tax on gain.  

I would be frustrated if I were you.  Heck I'm frustrated for you :)