General Rule: In
order to defer all capital gains, taxpayer must purchase
equal or greater in value and equal or greater in
equity.
“Example 1” - Equal Value
& Lower Equity
|
|
Relinquished |
Replacement |
|
Value |
$750,000 |
$750,000 |
|
Debt |
$450,000 |
$550,000 |
|
Equity |
$300,000 |
$200,000 |
|
$450,000 debt
relief is offset by $450,000 of the new debt,
but the $100,000 cash received is not offset by
the remaining $100,000 of new debt = $100,000
TAXABLE BOOT |
“Example 2” -
Lower Value & Equal Equity
|
|
Relinquished |
Replacement |
|
Value |
$750,000 |
$500,000 |
|
Debt |
$450.000 |
$200,000 |
|
Equity |
$300,000 |
$300,000 |
|
$450,000 debt
relief partially offset by $200,000 new debt,
but the remaining $250,000 of debt relief is
TAXABLE BOOT |
Receipt of “boot” will not invalidate the exchange.
However, receipt of too much boot could render the
exchange ineffective. |
