The 1031 Exchange Institute

Welcome to The 1031 Exchange Institute™. The 1031 Exchange Institute is your complete online resource for 1031 exchange, 1033 exchange, 1034 exchange, 721 exchange, 453 installment sale and 121 exclusion information.  Information will also be provided regarding Self-Directed IRAs, including Traditional IRAs, ROTH IRAs, SEP-IRAs and SIMPLE IRAs. 

The 1031 Exchange Institute is dedicated to educating and informing real estate investors and their advisors on the benefits of 1031 tax-deferred exchanges and other tax deferred and tax exlcusion strategies so they can make better informed investment decisions.

1031 Exchange Discussion Forum > 1031 Exchange with hold back funds

I have a client doing a 1031 exchange and in lieu of reducing the new debt, they are taking on more debt and holding out funds for improvements. Are the funds held out for improvements considered boot?
March 26, 2015 | Unregistered CommenterNick
Hi Nick,

Yes, the net proceeds would be considered taxable boot unless your client structures an improvement 1031 Exchange. If the amount of funds is small, then it probably makes more sense to just holding out some of the funds, pay the taxes and then complete the improvements (and not do an Improvement 1031 Exchange. However, if the funds are substantial, then it would make sense to structure an Improvement 1031 Exchange so that the taxes are deferred and complete the improvements as part of the 1031 Exchange. It all depends on the amount of tax that would be due compared to the increased Improvement 1031 Exchange Fee.
March 26, 2015 | Unregistered CommenterWilliam L. Exeter
Thank you for the information. However, the exchange closed on 01/07/15 (180 days) and title has transferred. Can an improvement 1031 exchange still happen with the 2 million dollars of the held out funds, I doubt it.
March 27, 2015 | Unregistered CommenterNick
Hi Nick,

You are correct. It is too late to structure an Improvement 1031 Exchange and complete the improvements through the 1031 Exchange once the 1031 Exchange has been completed and the taxpayer/investor has received title to the replacement property.
March 28, 2015 | Unregistered CommenterWilliam L. Exeter