Would like to get cash at closing from a 1031. Any creative but legal way to do this???
At least would like to get repair expenses (just prior to sale) on property given up in 1031 paid through 1031, to avoid cash out of pocket. How to do this?
If a contractor agreed to work on the property being relinquished and be paid from sales proceeds, this would be trigger a taxable event?
If there were a mechanic’s lien, would payment of the lien also trigger a taxable event?
Any cash you get at closing is taxable to the extent of any gain on the sale. You might consider refinancing the property after the 1031. Paying someone to whom you owe money is as if you had received the money yourself, though exceptions to that rule might apply. I’ve never looked at the 1031 case law with that question in mind.
John Hyre
If you can get the repair man/company to wait for payment until the sale closes that would be best because you could put the repair bill on the HUD1 settlement statement and not worry about having to pay ‘boot’ on the funds you would have needed to withhold from the exchange. If the repairs were completed prior to the purchase contract or as an ongoing function of maintaining the property, those expenses are not reimburseable without having to pay ‘boot’.
John is right on the money, and sorry Eric, but I completely disagree with you.
The use of any of the exchange proceeds for purposes other than the acquisition of like kind replacement property will trigger boot whether paid at the closing and added to the HUD1 or not (the only exception are routine closing costs). Repair, maintenance, and other related costs are operating expenses and can NOT be paid with net exchange proceeds in order to avoid taxable boot.
The same issue applies if you use your net exchange proceeds to forward security deposits that you have been holding to the buyer or to settle prorated rents. You can not use net exchange proceeds to pay for these items unless you want to create a taxable event.
The Treasury Regulations are very clear on these points.