<xyzer[at]hotmail.com> wrote:

- quote -

I am not a 1031 expert, but it is my understanding that ALL
boot (cash and non-like kind property) received is taxed.

Gene E. Utterback, EA

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<xyzer[at]hotmail.com> wrote:

- quote -

I don't think so. Mortgages don't count.

Suppose for the second property he used all $40 and took a
$110 mortgage. Then there's no tax. One second later, he
took a second mortgage for $20. There's no tax on that,
either.

Seth

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- quote -

Assuming there were no imporvements, and the property is
business property, it's basis is $100,000. with adjustments
for depreciation allowed/allowable. A properly executed
1031 results in the profit being deferred.

Generally, if you exchange business or investment property
solely for business or investment property of a like-kind,
no gain or loss is recognized under Internal Revenue Code
Section 1031. If, as part of the exchange, you also receive
other (not like-kind) property or money, gain is recognized
to the extent of the other property and money received, but
a loss is not recognized.

Section 1031 does not apply to exchanges of inventory,
stocks, bonds, notes, other securities or evidence of
indebtedness, or certain other assets.

Like-Kind Property

Properties are of like-kind, if they are of the same nature
or character, even if they differ in grade or quality.
Personal properties of a like class are like-kind
properties. However, livestock of different sexes are not
like-kind properties. Also, personal property used
predominantly in the United States and personal property
used predominantly outside the United States are not
like-kind properties.

Real properties generally are of like-kind, regardless of
whether the properties are improved or unimproved. However,
real property in the United States and real property outside
the United States are not like-kind properties.

Additional Resources which you may find at http://www.irs.gov

Publication 544, Sales and Other Dispositions of Assets

Form 8824, Like-Kind Exchanges (PDF)

"Jack" - John H. Fisher - TaxService[at]aol.com
Philadelphia, Pa - Atlantic City, NJ - West Wildwood, NJ
My Newsgroups & Boards at: http://members.aol.com/TaxService/index.html

Where Ignorance is bliss, 'tis folly to be wise!=

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This is a simple hypothetical example that I imagine is
probably incredibly common. In fact, what made me think of
this is that one of my friends just went through a deal
similar to this and we both wondered what the tax results
would be. His attorney actually told him he wouldn't be
taxed, but I'm not so sure. Anyway, suppose I acquire
property in 1999 for $100 using a mortgage of $90 and $10 of
my own cash. Then, four years later, I engage the property
into a like-kind transaction. The property is sold for $120
and $80 is sent to payoff the (what was originally) $90
mortgage. The rest, $40, is sent to escrow. As you
probably just noticed, this example is assuming no
transactions costs to make things more simple. Anyway, so
we're sitting now with $40 in the escrow account. He then
identifies property worth $150 and acquires it by getting a
mortgage of $130 and using $20 of cash from the escrow
account. He then receives $20 cash from escrow.

Here's my reasoning. The $130 mortage for the second
property is considered mortgage boot given, right? It
offsets mortgage boot received associated with the first
property of $80, with $50 left over of mortgage boot given.
But mortgage boot given does not offset cash boot received,
right? So, in general, he's taxed on the $20, correct? Or
no?

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