Tax Advisor and CPA Coordination

A qualified intermediary handles the mechanics of holding funds and preparing exchange documents, but questions about boot, debt replacement, and basis carryover belong to the investor's CPA and tax advisor, and those questions need to reach the advisor while there is still time to change course.

Boot Is a Math Problem, Not a Guess

Boot arises when the investor receives cash or has debt relief that is not offset by acquiring equal or greater debt on the replacement property, and it is calculated from actual purchase price, debt amount, and closing cost figures rather than a general sense of whether the deal feels clean. Sending the CPA a draft closing statement before the sale closes gives the advisor time to flag boot exposure while the transaction can still be adjusted.

Closing costs themselves can create a smaller, easy-to-miss boot exposure, since certain fees are treated as exchange expenses while others are not, depending on how they are categorized on the settlement statement. That categorization is exactly the kind of detail a CPA should confirm on the draft statement before it becomes final.

Debt Replacement Across Formats

Whether the replacement property is a ring-industrial building, a multifamily unit, or a DST allocation, the same debt replacement principle applies: the investor generally needs to replace the debt paid off on the relinquished property with equal or greater debt on the replacement side, or offset the difference with additional cash. DST allocations handle debt differently than a directly owned building, so that comparison needs the CPA's input before an allocation is chosen over a direct acquisition.

An investor comparing a directly owned ring-industrial building against a DST allocation is effectively comparing two different debt structures at the same time as two different property types, and collapsing that into a single side-by-side comparison without the CPA's input can hide which option actually meets the debt replacement requirement.

Common 1031 Exchange Questions

What triggers taxable boot in a 1031 exchange?

Boot occurs when the investor receives cash, personal property, or unreplaced debt relief in the transaction. It is calculated from the actual purchase price, debt, and closing figures on both properties, so a CPA should review the numbers before the sale closes, not after.

Does a DST allocation handle debt replacement the same way as a directly owned property?

Not exactly. DST debt is structured at the trust level and allocated to investors differently than a direct purchase with its own loan, so that comparison should go through the CPA before choosing between a DST and a directly owned replacement.

When should an investor loop in the CPA on entity or title-holding questions?

As early as possible, ideally before the relinquished property is listed for sale. Changes in title-holding entity between the relinquished and replacement properties can affect exchange eligibility and should be reviewed well before a purchase agreement is signed.

What does the CPA need to prepare Form 8824?

A complete closing record for both the relinquished and replacement properties, including the exchange agreement, identification notice, closing statements, and debt schedules, organized as one package rather than pieced together after the fact.

Can the replacement property be titled differently than the relinquished property?

It can, such as moving from individual ownership to an LLC, but any change in title-holding structure should be reviewed with the CPA and attorney before the purchase entity is formed, since it can affect whether the exchange qualifies as originally structured.

Does the CPA need to be involved if the exchange only involves one replacement property?

Yes, even a single-property exchange still requires boot, basis, and debt replacement review, and the CPA's involvement should start before the START EXCHANGE REVIEW closes regardless of how simple the replacement side appears.