Possible Myths about 1031 exchange

[Edsel]

Good client owns rental property.  FMV $130,000 Original Cost $80,000 with $35,000 depreciation.  "Book" value thus $45,000.  Wants to work out a 1031 exchange with the realtor for another property.  It is important to state that he still owes $53,000 on the first property.

Both properties will be rental properties.  New property will be "purchased" (if you wish to call it that) with a FMV of $250,000, and he plans to borrow $150,000 on the new property.  He believes:

1. He will not have to pay $53,000 as boot on the first property because he is replacing that mortgage with a mortgage of greater amount. 
2. He is possibly concerned about $35,000 depreciation recapture.

I don't believe he is correct.  I believe the $53,000 is taxable as boot regardless of what he does with any future debt.  Don't know about depreciation recapture in light of the new law.

What is the latest on this proposed 1031 exchange?

 

[BHoffman]

He shouldn’t have any mortgage boot as long as the new debt is more than the old debt.  There isn’t any depreciation recapture if the new property has a higher Basis than the old property. 

[DANRVAN]

Agree, 1031 basics.