Don't Get the "Boot"!

The term “boot” is not used in the Internal Revenue Code or the Regulations but, is commonly used in discussing the tax consequences of a 1031 Exchange. Boot is property received in an exchange but not “like-kind”. Receiving boot does not disqualify the exchange but should be avoided in order for the exchange to be tax free. An exchanger who receives boot in an exchange transaction generally recognizes a gain to the value of cash received or unutilized debt.


Here is where Advantage Wealth Solutions comes in to the conversation:


When a primary goal of exchanging is tax deferral, the objective is to place every possible dollar into new property. If your relinquished property is sold for a price greater than the price of the replacement property, the difference is considered boot and will become taxable—unless the investor finds a way to use it. Searching for another property could be challenging due to inventory and the 45-day identification timeline. Additionally, an investor may find themself with a remaining balance from your sale after having re-invested the bulk of the profits from the sale. Lesser amounts might not be enough to acquire an attractive investment property without financing or further cash investment.


A Delaware Statutory Trust (DST) can be used to remove the boot.


A DST lets the investor choose the exact amount they wish to invest, down to the penny. Minimum investments are often $100,000 or less, allowing investors to remove the boot. Along with deferring all taxes from the sale, the money is Invested in professionally managed income producing property without the obligation of active property ownership.


Keeping all of your money working is possible with a Delaware Statutory Trust. Contact Advantage Wealth Solutions today to discuss how a DST can work for you.