1031 Exchange And Boot - More Questions.
2 questions:
I've rolled over a rental property into another using a 1031 exchange. Now, I'm rolling out of the second property into multiple properties.
First, I have both "recapturable" depreciation and LT capital gains built up. Do I "allocate" the built up gains on an equal basis to the multiple properties?
Second, if I take a small amount of "boot," does anyone know if the tax formula against the boot again allocates the "recapture" and the "capital gain."
Thanks, Novice RE Investor
Are you using a 1031 exchange to replace your single property with multiple properties?
If not, why not?
Yes, I'm using a 1031 exchange.
But, I want to try to get some cash out. Although I obviously need to talk to an accountant. If I take some cash out, I have boot. Is the basic principle for the tax on the boot that you first pay your tax on the recapture of accelerated depreciation (obviously at a higher rate), after which you pay the LT cap gain? This will affect my decision as to whether to take money out and how much.
I'm pretty sure I have the second question answered in that the basis of my new "multiple properties" will be the basis of my relinquished property "allocated" proportionally to my replacement properties
Depreciation taken for the relinquished property already factors into the cost basis of the replacement property.
The cash boot you receive as a result of the exchange will be taxed as a capital gain.