1031 Boot Calculator

Start with the three numbered boxes. Enter 1, your sale price, and 2, the loan paid off; 3, your sale proceeds, is worked out for you. If your figures show no total price — some sponsors send an investor-level sale estimate giving only your share of the proceeds and the debt — add those two amounts together and enter the total as 1. You can use projected figures before the sale closes and update them when final figures are available.

Then enter the equity you invested when you bought the DST and the depreciation you have taken. The calculator works out your adjusted basis and your gain from those. Then add each replacement DST: the equity you are putting in and its LTV from the offering.

The other boxes apply only in certain situations. If you bought this DST through a previous 1031 exchange, enter the gain deferred from that exchange. If your share of the loan changed while you owned the DST, check DST debt change and enter the original loan share as a dollar figure or as the Original LTV.

Check DST debt change only if your share of the DST loan changed while you owned the investment. For most DSTs, the loan does not change, so leave it unchecked unless you know your loan share changed.

Your tax cost in a DST is what you paid for it: your equity plus your share of the loan on the day you bought in. Your gain at sale is what you received — the cash plus the loan paid off — minus that cost, after depreciation.

The calculator needs the loan figure twice, at the start and at the end. It asks only for the loan paid off and assumes the original loan was the same because most DST loans are interest-only and do not change. If the loan was paid down or refinanced while you owned the DST, your original loan share was different, your cost was higher, and your gain and tax are lower than the calculator would otherwise show. Check DST debt change and enter the original figure. Original debt of $1,000,000 instead of $900,000 turns a $450,000 gain into $350,000.

Your sponsor may send you an individual sale estimate showing your share of the sale proceeds and debt. If not, the figures may appear in a sale analysis, disposition analysis, estimated sale statement or final closing statement.

Sponsors use different terms for these figures, so look at what the amount represents rather than just the label. Be careful with a bottom-line figure such as “estimated net sale proceeds” or “proceeds due seller” because the loan and other costs may already have been deducted. Enter the sale price in box 1 and the loan payoff in box 2; box 3 is worked out for you. A bottom-line figure is not box 3.

Actual proceeds received at sale is optional and is used only for the gain or loss on your equity. It is the amount actually distributed to you, often labelled Proceeds Due Seller, and it changes none of the tax figures. Before the sale closes, the figures may be estimates, so your final numbers may change. The result is a planning estimate; your CPA determines the final figures for your tax return.

Equity invested is on your subscription agreement, and the original loan share or LTV is in the offering you bought into. Leave it blank if the loan never changed. Depreciation is in your annual grantor trust letters. Gain deferred from last exchange is on Form 8824, line 24, of the return for the year you bought it, which your CPA will have.

For a property you owned directly, the closing statement gives the cash to you and the loan payoff, and your depreciation schedule gives the rest. Equity and Debt for each new DST are in the offering documents, or ask your NexTrend representative.

Your sale or settlement statement may include several different fees, expenses and adjustments. Not all of them are treated the same way for tax or 1031 exchange purposes.

Look first to see whether your sponsor provides a total for qualified selling expenses. If it does, that may be the easiest place to start. These expenses may include items such as disposition fees, sales commissions, title and escrow fees, transfer taxes and disposition-related legal fees.

Other amounts on the statement — such as loan principal, accrued interest, prepayment charges, lender reserves, property-tax prorations and other adjustments — may affect the cash you receive without necessarily being included as selling costs in this calculator.

If your statement shows yield maintenance, a prepayment charge or another item whose tax treatment is unclear, check with your CPA before including it as a selling cost.

If you entered the gross sale price in box 1, enter your qualified selling costs here. If the figure you entered already has selling costs taken out, enter only costs not already reflected in it, such as the QI fee you pay separately.

If your statement does not show a total for qualified selling expenses, ask the sponsor or your NexTrend representative what the line items are. If you are unsure how a particular charge should be treated, ask your CPA or tax advisor before relying on the calculation.

Boot is anything you receive in an exchange that is not like-kind real estate. It comes in two forms: cash boot, which is money you take out or exchange funds that never get placed, and debt boot or mortgage boot, which is a loan you paid off and did not replace. Boot is taxable up to the amount of your gain. Everything else is deferred.

Because the rules only net in one direction. Cash you take out is taxable no matter how much new debt you take on. Debt you paid off can be offset by new debt or by cash you add. So a $200,000 cash-out stays $200,000 of boot even if your DSTs carry $1,000,000 more debt than you had before.

Enter your share of each new DST’s loan under Debt — it is in the offering documents — or enter the DST’s LTV and the debt fills in. New debt replaces the loan you paid off dollar for dollar. If the new debt falls short, cash you add makes up the difference. Whatever is still short is debt boot.

The Exchange Funds strip shows the cash you have to place in DSTs: your sale proceeds less any selling costs you entered and the cash you plan to keep, plus any cash you add. If your DST equity adds up to less than that, the remainder comes back to you from the intermediary and is cash boot. If it adds up to more, the calculator treats the difference as cash you are adding.

Gain that comes from depreciation you have taken is depreciation recapture, taxed at up to 25%. The rest is long-term capital gain at 15% or 20%. When only part of your gain is taxable, the depreciation layer is used up first. Take $450,000 of depreciation and recognize $250,000 of gain, and all $250,000 is at 25%. State tax applies to the whole taxable amount. The 3.8% Net Investment Income Tax may apply to some or all of the taxable gain, depending on your modified adjusted gross income and net investment income. Confirm the amount with your tax advisor.

The rates are pre-filled at 25% for depreciation recapture and 20% for federal capital gains, both editable. The federal rate is 15% or 20% depending on your taxable income. Enter your state rate, or leave it blank if your state has no income tax. Untick the net investment income tax if your income is below its threshold. Your CPA can confirm all four.

Basis is your cost for tax purposes. In an exchange you carry the basis from what you sold into the new DSTs instead of starting fresh at what they cost. The difference between the two is the gain you deferred. It is the number you will enter as Gain deferred from last exchange the next time one of these DSTs is sold, and it becomes taxable if you ever sell without exchanging. The calculator shows the figure so your CPA can confirm it on Form 8824.

The investor’s DST is sold. The sponsor’s figures show a total sale price of $1,600,000 and a loan paid off of $900,000, so box 3, sale proceeds, is $700,000. The investor put in $700,000 of equity, the loan share was the same $900,000 when bought, and $450,000 of depreciation has been taken. Adjusted basis is $700,000 + $900,000 − $450,000 = $1,150,000, and the gain is $1,600,000 − $1,150,000 = $450,000.

The investor takes $200,000 in cash and places the other $500,000 in two DSTs that carry $850,000 of debt. The $200,000 is cash boot. The debt is $50,000 short of the $900,000 paid off, so that is debt boot. Total boot is $250,000: all of it is taxable, all at 25% because it comes out of the depreciation first, and the remaining $200,000 of gain is deferred. Take no cash and replace the full $900,000, and the taxable gain is zero.

Yellow boxes are for you to type in. Every other figure is calculated. The green panel is the headline: the gain that may be taxable and the estimated tax on it. The status line above the results is green for a full exchange with no boot, red when there is boot and some or all of your gain is taxable, and gold when there is nothing to tax yet. A figure in red is negative — the sale shows a loss rather than a gain.