How much gain do I have if I trade down?

admin  /   January 25, 2019

The way to calculate this is first to figure out what the gain would have been on an outright sale.  On an exchange, one can never have more gain than that.  Then look to the amount of cash that was not rolled over, or the amount by which the purchase price of the new property is less than the selling of the old property.  This will be the so-called “boot.”  The gain is the lesser of the gain that one would have had on an outright sale or the amount of boot.  For example, say that on an outright sale, one would have had $50,000 of gain.  On the exchange, there was $10,000 of cash that was not reinvested.  The first $10,000 of gain is subject to tax.  It is not one-fifth of the gain.  The boot is taxed dollar for dollar off the top, subject to the limitation that there cannot be more exchange gain than on an outright sale.

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