Boot Tax and Estate Tax for Commercial Real Estate 1031 Exchange Properties, Part 2 of 3_Tim Vi Tran_Season 1, Episode 22

Understanding What Really Happens When a 1031 Exchange Isn’t Perfectly Balanced

In Part 1, we explored how savvy investors use the 1031 Exchange as a tax deferral tool and why the step-up in basis can eliminate capital gains and depreciation recapture when transferring property to heirs.

This episode continues the conversation by unpacking two major topics investors often overlook: how estate taxes interact with inherited 1031 properties, and how boot tax is triggered when exchange proceeds aren’t fully reinvested.

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Interested in learning how these rules apply in real, complex scenarios? Access case studies for a small fee to see real-world applications of 1031 Exchange rules, timing, and structuring.

What This Episode Covers

In this breakdown, you’ll learn:

• The difference between the step-up in basis for income tax and how federal and state estate tax rules apply

• Why some states impose additional estate or inheritance taxes with lower exemption thresholds

• What happens when less than 100 percent of proceeds in a 1031 Exchange are rolled forward

• The three primary sources of boot: cash boot, debt boot, and non-like-kind property

• When closing costs absorb potential boot versus when they trigger taxable boot

• How taxable gain is calculated, including depreciation recapture vs. capital gain

• Real examples showing the math behind recognized gain, deferred gain, and basis in the replacement property

• Why sometimes intentionally taking boot can be the smarter strategic move

What’s Next in Part 3

In the final episode of this mini-series, we’ll answer:

1. How the IRS prioritizes ordinary income tax, capital gain, cash boot, debt boot, and non-like-kind property

2. Why boot isn’t automatically negative, and when it can be part of a strategic acquisition approach

Applying Tax Rules vs. Knowing Them

Real estate investing isn’t just about knowing the rules. It’s about applying them to transactions with moving deadlines, changing numbers, and evolving goals. Just like learning a sport, understanding the playbook isn’t enough. Execution matters.

If you’d like to see how these rules play out in real-world transactions, you can access detailed case studies for a small fee.

When You’re Ready for Expert Guidance

Commercial real estate deals require expertise across investment strategy, financing, negotiation, taxes, legal structure, and portfolio alignment. With more than 100 years of combined experience, The Ivy Group is ready to support your next purchase, sale, or lease.

📩 Have a real estate need or question? Contact The Ivy Group.

Disclaimer

All information in this episode, and in related articles, blogs, courses, and case studies, is intended for general education only and not as tax, legal, or investment advice. Always consult licensed tax, legal, accounting, and financial professionals before taking action.

Copyright © 2025 by Tim Vi Tran, SIOR, CCIM. All rights reserved.