The "Lesser of" Rule: Taking Cash from a 1031 Without Ruining the Deal скачать в хорошем качестве

The "Lesser of" Rule: Taking Cash from a 1031 Without Ruining the Deal

We are performing a forensic review of "Boot"—the most misunderstood concept in 1031 Exchanges. Many investors believe that touching any cash at closing disqualifies the entire tax-deferred transaction. This is false. However, taking cash turns your deal into a "Partial Exchange," triggering a taxable event that is governed by the "Lesser of Rule." As The Finance Observer, I analyze the specific intersection of IRC Section 1031 and IRC Section 1250 (Depreciation Recapture) to show why the cash you take out is rarely taxed at Capital Gains rates (15-20%) and is instead hit with the 25% Recapture Tax first. FORENSIC BREAKDOWN: 0:00 The "Partial Exchange" Myth: Why taking $10k out doesn't blow up the entire deal. 01:40 Defining "Boot": The two types—Cash Boot (Money taken) and Mortgage Boot (Debt Relief). 02:34 Realized vs. Recognized Gain: The crucial formula. Why you only pay tax on the Lesser of your total profit or the boot received. 04:17 The Mortgage Boot Trap: Why buying a cheaper property with a smaller loan triggers a tax bill (Debt Relief = Income). 04:34 The Offset Rule: Why you can add cash to offset a bigger mortgage, but you CANNOT add debt to offset cash boot. 05:35 The Section 1250 Sting: The "Stacking Rule." Why the IRS forces you to pay the 25% Depreciation Recapture tax before you get to the lower Capital Gains rates. 06:31 Form 8824 Reporting: Line 15 (Boot Received) vs. Line 20 (Recognized Gain). 07:16 The "Cash-Out Refi" Strategy: The correct way to access liquidity tax-free after the exchange is seasoned. DISCLAIMER: I am The Finance Observer. This content is for educational purposes only. 1031 Exchanges are governed by IRC Section 1031. Depreciation Recapture is governed by IRC Section 1250. Reporting is done on IRS Form 8824. Always use a Qualified Intermediary (QI) and consult a Tax Attorney before selling investment property.