Form 8824 / 4797 Help: Partial 1031 Exchange with Cash Boot and Debt Reduction
Hi everyone,
I am working on a partial 1031 exchange for a client and want to ensure my form mechanics and boot calculations are correct before mapping to Forms 8824, 4797, and 8949.
Scenario Details:
Property Type: Residential Rental (Relinquished and Replacement)
Relinquished Sale Price: $330,693
Adjusted Basis: $107,100
Relinquished Loan Payoff: $114,369
Cash Boot Received (Cashed out): $100,000
Proceeds Sent to QI/Replacement: $115,000
Timeline: Closed on replacement property within the 180-day window.
My Analysis & Questions:
Realized Gain: $330,693 (Sale Price) - $107,100 (Basis) = $223,593.
Boot Received: The client took $100,000 cash. Additionally, there is a debt reduction of $114,369. Unless the new property was mortgaged for an equal or greater amount (netting the debt), total boot exceeds the realized gain.
Recognized Gain: Recognized gain is the lesser of realized gain or taxable boot. Because of the $100k cash and the debt relief, it looks like the entire realized gain of $223,593 might be recognized, effectively making this a fully taxable transaction despite using a QI. [1, 2]
Form Mechanics:
Form 8824: Line-by-line, how do you best show the netting of the debt if the replacement property mortgage details aren't fully clear yet?
Form 4797 / 8949: Assuming unrecaptured Section 1250 gain applies, does the recognized gain flow entirely to 4797 Part III, or do I split the cash boot to 8949?
Would appreciate any insights or a sanity check on how you guys sequence this when the client drastically downizes the replacement property value or takes massive cash boot. Thanks!