I'm struggling with a 1031 calculation. I'm simplifying the data to make it sound like homework, but I assure you this is actual client data. I'd appreciate some guidance on the proper treatments.
Taxpayer owns apartment complex for 3 years. Original cost of the relinquished property is as follows:
Land $250K
Building $1,500K
Land Imp $100K
(1245) Appliances, etc $200K
Deprec (1250) ($200K)
Deprec (1245) ($150K)
Net Book Value of Property = $1.7MM
Property sells in 2018 for $3MM. Commissions/Closing Costs of $200K.
Debt of $1.4MM is paid off in the process, and the remaining $1.4MM of net proceeds are received by a qualified 1031 intermediary.
New property is identified and purchased in the proper time frame.
Purchase price is $3.3MM, but a $200K credit is given to the buyer per the contract for needed improvements. In the succeeding months, in excess of $200K was spent on those improvements.
$1.4MM from Intermediary is applied and $2MM of bank debt is incurred. As a result, $300K of cash is received by the taxpayer on the closing of the replacement property.
So, I should have a realized gain on the sale of the relinquished property of $1.1MM ($3MM less $1.7MM NBV less $200K closing costs).
What gain is recognized? I guess that's a lot of detail to ask the real question - do I have boot? Specifically, is the cash received at closing taxable even though Taxpayer used the funds for improvements as specified in the contract and shown as a credit on the closing statement.
I believe the answer is yes, but wondering if I"m missing something.