Investment Property
In many cases, full tax-deferral exchanges are most advantageous to those looking to exchange investment property. For a full deferral to be possible, certain requirements must be met. First, the exchanger must reinvest the full net proceeds from the sale of the relinquished property into replacement property. This reinvestment can be accomplished by acquiring one or more new properties. Second, the newly acquired property must be equal to or greater than the original property's sales price less selling cost (this includes replacing both the cash and the debt). For various reasons, some investors find partial exchanges more suited to their unique needs. When an investor performs a partial exchange, he or she defers only a portion of the capital gains taxes. At the same time, the investor recognizes a gain. The gain stems from receiving cash from the proceeds of the sale or from reducing the replacement property debt. This situation results in a boot. Boot is received when property received in an exchange is not like-kind property. If cash is received, the boot is called a cash boot. A mortgage boot occurs when the exchanger reduces the mortgage debt on the replacement property. Personal property can also be considered a boot in an exchange. During a partial exchange, an exchanger can receive cash proceeds in one of two ways. He or she can request the disbursement of a fixed portion of the proceeds from the closing of the sale of the relinquished property. Likewise, cash can be received after all the identified properties have been purchased. If there are exchange properties that were identified, but not purchased at the end of the exchange period, cash proceeds can be received as well. To learn more about full and partial exchanges and gain assistance with finding the right investment property, contact us at TM 1031 Exchange by phone toll-free at 1-877-4TM-1031 or via e-mail us team@tm1031exchange.com if you have any questions.
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