Whose tax is this?

Every number below is priced against these. They move the answer more than the boot does — a boot worth structuring for one seller is pointless for another.

Filing status

State

Other income this year

This is the input that moves the answer most. Boot stacks on top of whatever else you earn that year, so the same $420,000 of boot can be worth structuring for one seller and pointless for another. Put the real figure in before you read anything below.

Other income in the years AFTER the sale

Leave blank if it stays the same. If they are retiring on this sale, this is the field that decides the answer — each yearly slice is taxed against that year's income, not this one's.

What you're selling, and what you're buying

Boot is the part of your exchange that doesn't defer. It comes from two places — cash you don't reinvest, and debt you shed without replacing. Both are below.

What is actually being sold

§1031(a)(1) defers real property only, and only while it is held for productive use in a trade or business or for investment. §1031(a)(2) puts property held primarily for sale outside it. Every figure below assumes the first line.

Relinquished sale price

Adjusted basis

Purchase price plus improvements, minus all depreciation taken.

Selling & exchange costs

Commission, escrow, title, QI fee. These reduce boot.

Mortgage paid off

Replacement price

New mortgage on replacement

Cash you're deliberately keeping

Money taken at closing rather than reinvested. Starts at a third of what the intermediary is holding — drag it, or type an exact figure.

Outside cash you're adding

From savings, not from the sale. Shelters mortgage boot only.

How your depreciation was taken

This decides the character of the boot, which decides whether a note can help. Straight-line on the building is §1250 — taxed at 25%, and it can be spread. Anything a cost segregation study moved into 5-, 7- or 15-year property is §1245 — ordinary income, and §453(i) puts all of it in year one no matter what you do.

What you paid for it

Purchase price, not today's value.

Land share of that price

Percent. Land never depreciates — your assessor's split is the usual source.

Improvements since purchase

Capitalised work, not repairs.

Estimate my depreciation from those numbers

Straight-line depreciation taken (§1250)

Cost-seg / personal property (§1245)

Leave at 0 if you never ran a cost segregation study.

Your tax picture

Boot stacks on top of everything else you earn that year — that's why the same boot costs two sellers different amounts.

Tax year of the sale

Which year's brackets price this deal. The IRS re-indexes them every year under §1(f)(3), so a December closing and a January closing are not the same answer. Options are built from the tables the engine actually holds.

If you took a note, over how many years?

1 yr 40 yr

Note interest rate

Applicable federal rate for that term (AFR)

The floor the IRS holds the note to. Treasury publishes short-, mid- and long-term AFRs every month (§1274(d)) — enter the one for your term and month. The card below names the term.

Other installment notes already outstanding

§453A(b)(2)(B) tests all of a seller's installment obligations together at year end, not just this one. A seller already holding paper can cross $5,000,000 on a note that looks small by itself.

IRS underpayment rate (§6621)

The §453A(c)(2) charge is billed at this rate, and the IRS resets it every quarter. Enter the rate for the quarter, the way you would the AFR.

Farm or personal-use property?

§453A(b)(3) puts both outside the interest charge entirely.

What you can still do about it

Every one of these has to be in place before the intermediary wires the money. After closing there is no amending your way out.

Suspended passive losses you already have

From years this property ran a loss. An exchange does not release them — but they can be deducted against recognised boot.

Put this much of the leftover into a DST

Delaware Statutory Trust. Rev. Rul. 2004-86 treats the interest as real property, so it is valid replacement property in any dollar amount.

DST leverage (LTV)

The trust's own debt counts as debt you assumed — which is what kills mortgage boot.

Closing date on the property you sold

Filed a Form 4868 extension?

Properties you identified (values, comma separated)

Written, signed, to the QI by midnight on day 45. A DST interest counts as one.

Buying from or selling to a related party?

§1031(f): both sides must hold for two years or the deferral unwinds. If you also took a note, §453(e) puts the same two-year clock on the boot.

Borrow against the note (net loan proceeds)

§453A(d)(1) treats the net proceeds of any borrowing secured by the note as a payment received on it. Leave at 0 to see the exposure without modelling a loan.

In which year of the note

Related buyer resells in year (0 = never)

§453(e)(2)(A) catches a resale inside two years of your sale — and §453(e)(2)(B) suspends that clock for any period their risk of loss is hedged.

What they resell it for

0 uses your own sale price. §453(e)(5) substitutes fair market value where the second disposition is not a sale or exchange.

Does a §453(e) exception apply?

Years you owned the property sold

Property type

Replacement property state

If you sold in California and buy outside it, California keeps its claim.

Two structures, side by side

What has to come out now, and what can ride the note

Two layers of a boot can never be spread however the deal is papered: §1245 cost-seg recapture, which §453(i) puts in the year of sale, and mortgage boot — debt the buyer took over, which is consideration you are treated as receiving with no cash behind it (Reg. §15A.453-1(b)(3)(i)). Everything below those two can ride the note.

DUE IN YEAR ONE

$0

CAN BE SPREAD

$0

What the boot is made of

Recapture comes off the front. Only the layers below it can ever be spread.

The phantom bill

Tax you owe versus cash you actually received.

CASH IN HAND

$0

TAX DUE

$0

What the fixes do

Your actual deadline

Your 45-day identification

The deduction you thought you were buying

Reg. §1.168(i)-6 — carryover basis keeps depreciating on the OLD schedule. Only new money gets a fresh clock.

Is the note's rate high enough for the IRS?

A below-market coupon is not cheap money for the buyer. §1274(c)(2) reprices the note: part of what the contract calls principal becomes interest — ordinary income, not 25% or 0/15/20% gain. This is the first thing a qualified intermediary will ask about.

Why the note gets sized at $5.0M

§453A(c) charges interest on the tax you have not paid yet — but only on the share of the note above $5,000,000. It is not a penalty and not a tax on the gain; it is rent on the deferral, billed every year the note is outstanding.

What happens if you borrow against the note

§453A(d)(1) treats the net proceeds of any borrowing secured by an installment obligation as a payment received on that obligation. The gain comes due the day the note is pledged — and unlike the interest charge above, this rule has no $5,000,000 threshold.

The two-year trap on a related buyer

§453(e)(1): if the person who bought from you is related and resells before you have been paid out, what they receive is treated as received by you. For two years your deferral is contingent on somebody else's decision.

Both sides, year by year

Paying the tax on day one permanently shrinks the principal at work. Both routes are taxed identically — the only difference is timing. The chart runs the two of them side by side; below it, each is stated as the pre-tax rate a CD would have to pay to match it.

If the cash were reinvested at

4%5.00%6%

Over how many years

The note's own term is on the “your tax picture” tab. Past the last payment, both sides simply compound.

Take it as cash, or take it as a note

Same boot, two ways to receive it.

CASH AT CLOSING

$0

You keep $0

SPREAD OVER A NOTE

$0

You keep $0

Have this run on your actual numbers

1031 Boot Calculator

What is the tax bill on your property sale going to be?

Whose tax is this?

What you're selling, and what you're buying

How your depreciation was taken

Your tax picture

What you can still do about it

Two structures, side by side

What has to come out now, and what can ride the note

What the boot is made of

The phantom bill

What the fixes do

Your actual deadline

Your 45-day identification

The deduction you thought you were buying

Is the note's rate high enough for the IRS?

Why the note gets sized at $5.0M

What happens if you borrow against the note

The two-year trap on a related buyer

Both sides, year by year

Take it as cash, or take it as a note

Basis of calculation

What this was run on

Authority relied on

Run your specific numbers

1031 Boot Calculator

What is the tax bill on your property sale going to be?

Whose tax is this?

What you're selling, and what you're buying

How your depreciation was taken

Your tax picture

What you can still do about it

Two structures, side by side

What has to come out now, and what can ride the note

What the boot is made of

The phantom bill

What the fixes do

Your actual deadline

Your 45-day identification

The deduction you thought you were buying

Is the note's rate high enough for the IRS?

Why the note gets sized at $5.0M

What happens if you borrow against the note

The two-year trap on a related buyer

Both sides, year by year

Take it as cash, or take it as a note

Basis of calculation

What this was run on

Authority relied on

Run your specific numbers

Related on Goldstein & Co.