Seller credits & cash boot in a 1031 exchange

[Stacy Tring]

Hi all, 

Would like to check my understanding on how a 1031 exchange is affected by offering or receiving seller credits. 

More specifically, I am wondering about seller credits for closing costs and seller credits for repairs. I know that seller credits for security deposits, property taxes, and rent should be handled outside of escrow. In the below scenarios, let's assume that all relinquished properties are paid off in full, so we are only potentially dealing with cash boot and not mortgage boot.

WHEN SELLING MY RELINQUISHED PROPERTY:

1A) If I offer a seller credit, does that simply reduce the net proceeds I have to spend on my replacement property? For example, if my sale price plus standard closing costs is $300,000 and I offer a seller credit $10,000, does that simply mean I have to buy property valued at $290,000 to defer all tax and not have any boot? 

1B) Does the answer change if it is a credit for closing costs vs a credit for repairs?

WHEN BUYING MY REPLACEMENT PROPERTY:

2A) If I am offered a seller credit,does that simply reduce what "spend value" the replacement property will count as when checking to see if I spent all my 1031 proceeds? For example, assuming I have $290,000 that I have to spend from 1A above, let's say I put in an offer of $300,000 on a new place and end up getting a $15,000 seller's credit. Does this simply mean I am deemed to have "spent" $285,000 of my proceeds and thus have $5,000 in cash boot that I need to pay tax on?

2B) Does the answer change if it is a credit for closing costs vs a credit for repairs?

GENERALLY:

3A) Since your cash boot is basically what you still have left after buying your replacement property, you won't know your boot total until the whole exchange is done right?

Thanks in advance for any clarification you all can provide!

[Stacy Tring]

@Dave Foster Thanks so much for detailed reply. So it sounds like a seller credit isn't automatically treated as boot on either half of the transaction; it simply affects 1) the net proceeds you receive as a seller (and thus the amount you must buy), and 2) the replacement value that the new house will count as when determining if you fully spent the net proceeds? Nothing is evaluated as cash boot until the end, after you compare #1 to #2 to see which one is greater?