Assuming Liabilities In a Tax-Deferred Exchange
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A taxpayer who assumes a liability or receives property subject to a liability gives boot.,
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A taxpayer who has a liability assumed or gives a property subject to liability receives boot.,
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Just as in a transaction where cash is both given and received, mortgage boot given and received are netted and only the excess is treated as boot given or received.,
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Other boot netting rules:
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Exchanger’s liabilities assumed by exchangee are also offset by cash paid by exchanger.,
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Cash or other boot received by exchanger IS NOT offset by exchanger’s assumption of exchangee’s liabilities.
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Understanding who assumes liabilities in a tax-deferred exchange can be difficult. The list above, plus the precedent outline below, are important for taxpayers who have engaged in this type of transaction.
Comm vs. North Shore Bus Co., Inc., 32 AFTR 931 states that where a taxpayer receives cash specifically for paying off a mortgage on a property involved in an exchange, the cash is not considered boot where the taxpayer is simply a conduit for the payment of the mortgage by the other party.