1031 exchange cash boot - reduce taxable amount by deducting improvements made to relinquished property?

Hello!

I flipped House A and sold it for a profit. Used the proceeds to purchase House B via a partial 1031 exchange, was left with a cash “boot”. I understand this boot is taxed as capital gains, will I be able to deduct the price of purchasing and improving House A the same way I would have had I simply sold it outright and paid capital gains on all the profit? Or will I pay capital gains tax on the entire amount of the boot?

If I do have to pay tax on the entire boot amount, will I be able to make the House A deductions when I eventually sell House B?

1113

Level 12

Oct 19, 2022 8:35:38 PM

Have to pay tax on all of the boot. Add improvements cost to basis of replacement property.

Level 15

Oct 19, 2022 11:18:08 PM

also, the cash boot is taxed as ordinary income to the extent of depreciation taken on the relinquished property. it will show on line 21 of the 8824

Why sign in to the Community?

1031 exchange cash boot - reduce taxable amount by deducting improvements made to relinquished property?