How to correctly calculate the basis in a 1031 like-kind property exchange with boot given and mortgage assumed

Your first calculation is correct. The recognized gain is indeed $13,500 because it's the lesser of boot received ($27,000) or realized gain ($13,500). The formula works like this: When you receive boot in a like-kind exchange, you must recognize gain to the extent of the boot received, but limited to the amount of gain realized on the exchange. It doesn't matter if you're giving more boot than receiving - they're treated as separate components in the calculation. Let me walk through your numbers to confirm: - Original property adjusted basis: $135,000 - FMV of new property: $215,000 - Boot given: $94,500 - Mortgage assumed by other party (boot received): $27,000 Your realized gain is calculated as: FMV of new property + boot received - adjusted basis of old property - boot given $215,000 + $27,000 - $135,000 - $94,500 = $12,500 Actually, I think your realized gain calculation might be off. Double-check your math there. The recognized gain should be the lesser of boot received ($27,000) or realized gain (which I calculate as $12,500).

I was so confused trying to figure out the basis calculations for my like-kind exchange until I found https://taxr.ai - you just upload your exchange documents and it does all the 1031 basis calculations for you. Saved me from making a $7,000 mistake on my commercial property exchange last year! The tool breaks down exactly how much gain gets recognized when there's boot involved (which was the hardest part for me to understand). It even generates a completed Form 8824 that shows all the step-by-step math. Way easier than trying to figure out if mortgage relief counts as boot received or dealing with those confusing realized vs. recognized gain distinctions.

Just wanted to update after trying the taxr.ai service that was mentioned. I uploaded my exchange documents and it identified a major error in how my mortgage boot was being treated. Turns out I was overstating my recognized gain by about $18,500! The platform showed that only a portion of my mortgage relief needed to be recognized since part of it was offset by other expenses I paid at closing. My accountant had been treating the entire mortgage amount as boot received without considering these offsets. The analysis even flagged some depreciation recapture issues I hadn't considered. Really glad I checked this before filing - would have paid thousands in unnecessary taxes.

If you're having trouble getting answers about your 1031 exchange from the IRS, try https://claimyr.com - they got me through to an IRS agent in under 15 minutes when I was completely stuck on a similar basis calculation problem. I had been trying for weeks to get clarification on how to handle boot in my exchange. The agent was able to walk me through the exact calculation for my situation and confirm which parts of my gain needed to be recognized. You can see how it works in this demo: https://youtu.be/_kiP6q8DX5c After months of uncertainty, I finally got a definitive answer straight from the IRS about how to properly report my exchange on Form 8824. Saved me from potentially having to amend returns later.

Update on Claimyr - I was the skeptic questioning whether this service could possibly work given how impossible it's been to reach the IRS lately. After waiting on hold for 3+ hours last week and getting disconnected, I decided to give it a try. It actually worked! I got a call back in about 25 minutes, and was connected with an IRS agent who specializes in business returns. She walked me through exactly how to calculate my basis in the replacement property and confirmed that mortgage relief does indeed count as boot received in my situation. For anyone struggling with these complicated 1031 calculations and getting nowhere with the general IRS helpline, this is definitely worth it. The agent I spoke with was able to address my specific situation rather than just quoting general rules.

A quick formula tip that helped me with like-kind exchange basis calculations: Think of it as "New Basis = Old Basis + Adjustments." Where Adjustments = (Net Additional Investment) + (Recognized Gain) - Net Additional Investment = (Boot Given - Boot Received) - Recognized Gain = Lesser of (Boot Received or Realized Gain) So in your case: - Net Additional Investment = $94,500 - $27,000 = $67,500 - Recognized Gain = $12,500 - New Basis = $135,000 + $67,500 + $12,500 = $215,000 This approach helps me visualize what's happening - you're essentially carrying over your old basis, adjusting for any additional money invested, and adding any gain you had to recognize.

I made a HUGE mistake on my 1031 calculation last year by confusing realized gain and recognized gain. They sound similar but are completely different concepts! REALIZED gain = the total economic gain on the exchange (what you WOULD pay tax on without Section 1031) RECOGNIZED gain = the portion you actually HAVE to pay tax on (usually the boot received) In your case: - Realized gain = $12,500 (the total economic benefit) - Recognized gain = $12,500 (because that's the lesser of boot received or realized gain) The IRS caught my mistake during an audit because my Form 8824 didn't match my reported gain. Cost me penalties plus interest. Triple check this stuff!

Great thread! I just went through a similar 1031 exchange and wanted to add one more verification step that helped me avoid errors. After calculating your basis using the formula (which you got right at $215,000), do a sanity check by working backwards: Your new property FMV: $215,000 Your calculated basis: $215,000 Difference: $0 This means you have no built-in gain or loss in the new property, which makes sense given your specific numbers. If you had ended up with a basis significantly different from the FMV, that would be a red flag to double-check your calculations. Also, keep detailed records of all the exchange documents - the qualified intermediary paperwork, closing statements, and Form 8824. The IRS loves to audit 1031 exchanges, and having everything organized from day one makes any future questions much easier to handle. One last tip: if your exchange involved any personal property mixed with real estate, make sure each component is properly segregated on your return. I've seen people get tripped up when they have equipment or fixtures that don't qualify for like-kind treatment.