1031 Boot Calculator

Start with the two figures on your sponsor’s sale statement: Net sale proceeds (the cash figure, before any cash you take) and your share of the loan paid off. 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.

The other boxes are optional. Original loan share only matters if your share of the loan changed while you owned the DST; you can enter it as a dollar figure or as the Original LTV. Gain deferred from last exchange applies only if you bought this DST with a 1031 exchange. Selling costs is for costs not already taken out of the proceeds figure, such as the QI fee.

For a DST, the sponsor’s sale statement gives Net sale proceeds and the loan paid off. 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.

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, 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. This is the point most online calculators get wrong.

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: Net sale proceeds less any selling costs and cash you take out, 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 unrecaptured depreciation, 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 and the 3.8% net investment income tax apply to the whole taxable amount.

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 sale statement shows Net sale proceeds of $700,000 and a loan paid off of $900,000. 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.