Can I add my own cash to the exchange to buy a bigger property?

Money you wire into the purchase is consideration you give, so it lands on a different line of Form 8824

Boot is defined by direction. Reg. §1.1031(b)-1 taxes you on what you receive: money, unlike property, and liabilities the other side takes off your hands. Nothing in §1031(b) reaches money that travels the other way.

The Form 8824 instructions follow the same split. Line 15 collects cash received, unlike property received and net liabilities the other party assumed, while line 18 adds together the basis of what you gave up, your exchange expenses and 'the net amount paid to the other party'. Your savings belong on line 18.

The practical result is that there is no ceiling on the purchase price. The exchange sets a floor on what you must buy, not a limit, which is why a $700,000 exchange can end in a $1,400,000 building.

Your contribution cancels debt relief dollar for dollar, but it cannot cancel cash you take out

Example 2 of Reg. §1.1031(d)-2 runs the arithmetic. Taxpayer E is relieved of a $150,000 mortgage, assumes an $80,000 mortgage and pays $40,000 in cash; the regulation subtracts both the assumed debt and the cash paid, leaving $30,000 of taxable consideration instead of $150,000.

So if you pay off a $500,000 loan at your sale and buy the replacement with only $350,000 of new debt, writing a $150,000 personal check closes the gap and the mortgage boot disappears.

The netting is one-directional. Adding cash offsets debt relief, and taking on extra debt does not offset cash you pull out of the exchange — that asymmetry is the subject of does a bigger loan offset cash I keep, and the debt-versus-cash choice is in replace the mortgage or add cash.

Worked example: $700,000 from the QI plus $300,000 of savings buys a $1,400,000 building

Hypothetical, round numbers, exchange expenses ignored; confirm the figures for your own sale with your CPA or attorney. You sold for $1,000,000 with an adjusted basis of $400,000 and paid off a $300,000 loan, so the intermediary holds $700,000 and your realized gain is $600,000.

You buy for $1,400,000 using the $700,000, $300,000 from your own account and a new $400,000 loan. Nothing comes back to you, and the $400,000 of new debt exceeds the $300,000 relieved, so line 15 is zero and the whole $600,000 stays deferred.

Note where the excess basis comes from: it is not simply the cash you wrote. It is every new dollar committed to the deal, here $300,000 of savings plus the $100,000 by which the new loan exceeds the old one.

• Purchase price $1,400,000 less deferred gain $600,000 = $800,000 of basis in the new building.
• Exchanged basis is the lower of that $800,000 and the $400,000 adjusted basis you carried, so $400,000 stays on the old depreciation clock.
• Excess basis $800,000 − $400,000 = $400,000, matching the $300,000 of savings plus $100,000 of net new debt.
• Only the improvement share of the $400,000 depreciates; the part your appraisal or tax bill assigns to land does not.

The excess basis restarts on a full 27.5 or 39-year schedule while the old basis keeps running

Reg. §1.168(i)-6(d)(1)(i) states that 'any excess basis in the replacement MACRS property is treated as property that is placed in service by the acquiring taxpayer in the year of replacement'. It gets the recovery period, method and convention that apply to the new building today, not the ones attached to the property you sold.

Publication 946 sets those periods at 27.5 years for residential rental property and 39 years for nonresidential real property. On the $400,000 above, the improvement share of the excess basis on a residential schedule adds roughly $14,500 a year in new deductions on top of whatever the carried-over $400,000 still produces.

Paragraph (i) of the same regulation lets you elect out by the extended due date of the replacement-year return, in which case 'the sum of the exchanged basis and excess basis' is treated as placed in service at the time of replacement. That simplifies the schedule but usually lengthens the write-off of the old basis, so ask your CPA to price both. The mechanics are in how the replacement is depreciated and basis after a 1031.

Adding cash raises the ceiling on what you can buy, not the floor on what you must spend

A contribution does not release you from anything. Every dollar the intermediary holds still has to be spent on property you identified by day 45, and you must still acquire at least as much value as you sold, or the shortfall is taxed. That test is set out in reinvest the whole sale price or just the gain.

What a contribution does buy is flexibility on price and on leverage. It lets you take a smaller loan than the one you paid off, buy a stronger asset than your equity alone supports, or close when an appraisal comes in low.

It also does nothing for cash you intend to pocket. If you want $100,000 out of the sale, adding $100,000 at the purchase does not net the two; see taking your original down payment out.

Keep both sources on one settlement statement, and fund a part-cash DST subscription the same way

The intermediary must disburse to the closing, not to you, because the safe harbor in Reg. §1.1031(k)-1(g)(6) rests on an agreement that strips you of any right to the funds until the exchange period ends. Send your own funds to the same escrow rather than to the intermediary, and have the closing agent show both wires so the file proves the exchange money bought identified property.

A Delaware Statutory Trust works identically: the sponsor's subscription agreement records an exchange wire from the intermediary and a separate wire from you, and the whole interest is a fractional real property interest with the cash portion creating excess basis. Because minimums run $25,000 to $100,000 per offering, part-cash subscriptions are ordinary. Buying a trust interest without any exchange at all is covered in DST without a 1031, and sizing across several trusts in DST minimums and sizing.

We work as a 1031 exchange broker, licensed across all 50 states inside a regulated broker-dealer framework, with twenty-plus years and a billion-plus dollars of DST placements behind us. Ask us which vetted national sponsors take a mixed subscription and what their documents require.