Most taxpayers report their exchanges of farm land by taking the position that water on the farm land is indistinguishable from, and the same thing as real estate. Big T Water acquired with farm land (possible issue).Īcquisition of ditch stock or Big T water is a possible issue with the IRS.Ditch stock in a mutual irrigation ditch company acquired with farm land (possible issue).Sprinkler equipment acquired with farm land.Non-like-kind property could include the following: Non-like-kind property which is received from the exchange, in addition to like-kind property (real estate). There is no guidance in the form of Treasury Regulations on this issue at the present time which is helpful. This position is usually the position of the financing institution also.
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However, the IRS may take a position that these costs are being serviced from Exchange Funds. Taxpayers usually take the position that loan acquisition costs are being serviced from the proceeds of the loan. Loan acquisition costs include origination fees and other fees related to acquiring the loan. Loan acquisition costs with respect to the replacement property which are serviced from exchange funds being brought to the closing. Additional financing must be no more than what is necessary, in addition to the cash, to close on the property. Taxpayers must use all cash being held by an Intermediary for replacement property. Excess cash held by an Intermediary is distributed to the taxpayer, resulting in cash boot to the taxpayer. Borrowing more money than is necessary to close on replacement property will cause cash being held by an Intermediary to be excessive for the closing. However, taxpayers may want to bring cash to the relinquished property closing anyway in order to resolve this issue.Įxcess borrowing to acquire replacement property. Under this rationale exchange cash used to service tax prorations should not result in taxable boot. Property tax prorations on the relinquished property settlement statement can be considered as service of debt based on PLR 8328011.
#Irc 1031 plus
Money includes all cash equivalents plus liabilities of the taxpayer assumed by the other party, or liabilities to which the property exchanged by the taxpayer is subject to. Boot received is the money or the fair market value of "other property" received by the taxpayer in an exchange.
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#Irc 1031 code
The term "boot" is not used in the Internal Revenue Code or the Regulations, but is commonly used in discussing the tax consequences of a Section 1031 tax-deferred exchange. Otherwise, boot should be avoided in order for a 1031 Exchange to be tax free. This is okay when a seller desires some cash and is willing to pay some taxes. Any boot received is taxable (to the extent of gain realized on the exchange). The Rules of "Boot" in a Section 1031 ExchangeĪ Taxpayer Must Not Receive "Boot" from an exchange in order for a Section 1031 exchange to be completely tax-free.