How is "boot" taxed in a 1031 Exchange?

[Daniel Dietz]

Hello All, 

I am trying to understand how 'boot' is taxed in a 1031 exchange. I am looking at a potential purchase from a relative and they might be interested in doing a 1031 into a new property, and I am wanting to explain the general benefits to them. 

Their situation is this; rental bought about 10 years ago for 220K (20K lot value), sell for 280K, took 70K of depreciation, and owe 150K.

So it seems they would have 70K of recapture tax, 60K of long term capital gains. 

Their AGI is about 58K, which is about 20K below where the tax brackets change and go from 12% to 22% on ordinary income and from 0% to 15% of capital gains.

The question; if they take 20K of 'boot' on this deal to take advantage of their low tax bracket, what does that get taxed as, 0% capital gains, or 'recapture' but at their rate of 12% instead of the higher 25% we hear so much about?

Thanks, Dan Dietz

[Daniel Dietz]

@Dave Foster can you help me out here? I think these folks will be giving you a call in the not too distant future :-)

Dan Dietz