What is 1031 Exchange Boot?
While section 1031 exchange of the IRS code offers an excellent opportunity for Real Estate investors by means of deferred tax exchange, the investor also needs to be very careful about getting into a 1031 exchange boot. If they do, they might still end up with a tax bill that they were trying to defer. Here’s why: Currently under the IRS 1031 exchange rules, only “like kind” property held for business or investment purposes qualifies for a 1031 exchange. However, there are a number of things that if included as a part of the exchange, can trigger a capital gain tax bill on the portion of the exchange that they represent. These examples are called a 1031 exchange boot. It is advised to ask your Qualified Intermediary about the possibility of triggering a boot when executing a 1031 exchange. A 1031 exchange boot can include any item in the trade that is not of the “like kind” as defined under section 1031 of the IRS tax code. Quite often people mistakenly get these boots included in the
