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.
