Put Your 1031 Exchange Boot to Work

By Thomas P. Roussel | January 31, 2022

make your 1031 exchange boot work for you with DTS

Don’t settle for paying taxes on your 1031 exchange boot

1031 Exchange boot example

Imagine you’ve made a $200,000 profit on the sale of your relinquished property, but your replacement property will only cost $150,000 to acquire. The remaining $50,000 is considered boot and will become taxable unless you find a way to eliminate it.

You could look for a second replacement property to acquire, but you may not have enough time within your 45-day identification period. Likewise, $50,000 may not be enough to purchase a worthwhile investment property, and you probably aren’t interested in investing additional funds out of your pocket in order to afford a property you would consider valuable.

At this point, you might consider accepting the tax consequences on your 50K boot.

Put your boot to work.

Consider using the the excess cash to instead acquire beneficial interests in a Delaware Statutory Trust (DST).

With a DST, you choose the amount you wish to invest. You can invest the exact amount necessary to avoid incurring 1031 exchange boot – not a penny more, not a penny less than you have allocated for your replacement property.

Why pay taxes on excess cash when you can invest it and let it earn you additional income?

why pay taxes on excess cash

What about Diversification?

You’ve probably heard that investors often turn to real estate to diversify their traditional investment portfolios, but what about focusing on diversification within your real estate investments?

When you invest your excess cash into a DST, you’re able to purchase a percentage of investment-grade real estate. As a result, you can diversify your real estate portfolio and offer an additional opportunity to earn income if the primary investment property does not produce as expected.

An important thing to note: DSTs have minimum investment requirements; this is usually between $25,000 and $100,000. Depending on your exchange amount, you could split your investment into several DSTs to create diversification and meet your equity and debt requirements.


Plan Ahead for Your Exchange Boot

Don’t be surprised by boot as you near the end of your exchange transactions. Plan ahead and put a backup plan in place before your 45 day identification period is up.

When you identify a property within a DST as one of your three replacement properties, you are covered in the event that you have boot in the form of excess cash after acquiring your replacement property.

The excess cash can be invested in the DST, and your taxable boot is eliminated.


Invest Your Boot in Qualified DSTs with 1031 Crowdfunding

With 1031 Crowdfunding’s online marketplace of qualified exchange properties, DST opportunities, and other investment properties, you can put your boot to work right away.

Our free access platform allows you to find and evaluate exchange properties, as well as identify DST opportunities for any leftover boot from your exchange. Learn more about our platform and request access today to simplify your real estate investing.

find exchange properties

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