Baker Tilly’s 1031 Like-kind Exchange Estimator Tool estimates the amount of tax potentially due if a like-kind exchange strategy is not undertaken, and the amount of taxes potentially deferred if an exchange is completed using assumptions furnished by a real estate owner or investor.
This tool is designed solely to provide useful information to understand the potential tax deferral. The rules governing like-kind exchanges are numerous and complex, and should be discussed with your legal counsel and/or tax advisor prior to engaging in any such transaction. Further, the tool is no substitute for the actual calculations made by your CPA to file your tax return, and should not be used in any return preparation
Under Section 1031 of the Internal Revenue Code, you can defer paying tax on the gain from the sale of business or investment real estate if you reinvest the gross sales proceeds into similar real estate property(ies) as part of a qualifying like-kind exchange. In general, you must identify replacement property(ies) within 45 days from the date of sale, and close on the purchase of the replacement property(ies) within 180 days.
A 1031 like-kind exchange may trigger recognition of some gains, referred to as “boot” in tax parlance. Boot is the term used to describe a portion of the exchange transaction that is not “like-kind” and does not invalidate the 1031 deferral, but it is taxable.
Examples of boot
- The fair market value of personal property acquired as part of the purchase price of the replacement property (e.g., furniture or equipment).
- Purchasing replacement property less than the value of the property sold and receiving cash or debt relief.
- Reinvesting less than all the net equity from the sale of the relinquished property and receiving cash back.
Boot is not uncommon, but the following steps will help minimize taxable boot:
- Purchase “like-kind” replacement property in an amount equal to or greater than the sold property.
- Reinvest all the net equity received from the sale of the original property.
For more information on this topic or to learn how Baker Tilly specialists can help, contact our team.
Your use of this 1031 Like-kind Exchange Estimator Tool (the “Estimator”) and any information contained herein is provided as a reference and is for informational purposes only. Any resulting calculation is not a complete calculation or exhaustive compilation of all relevant information. Baker Tilly makes no representations or warranties as to the accuracy, completeness, validity or applicability of information or calculations provided. Your use of the Estimator and Baker Tilly’s provision of the information and calculations contained herein is not and cannot be considered tax or legal advice. You must consult your attorneys, CPAs, or other qualified professionals with respect to any matters or items that require legal or tax interpretation to determine what additional policies, procedures or requirements under federal, state or other type of law or regulation apply to you. No client relationship is formed between you and Baker Tilly unless and until a formal engagement agreement is signed, and any professional services performed shall be subject to the same. You understand and agree that Baker Tilly shall have no liability to you for any losses, fees, expenses damages, liabilities, or other claims incurred as a result of your use of and reliance upon the Estimator. See Baker Tilly's online privacy policy.
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