Do seller concessions and repair credits create boot?

A credit you give your buyer is a lower price, and money you never receive cannot be boot

Boot is money or other property you receive. Section 1031(b) recognizes gain 'not in excess of the sum of such money and the fair market value of such other property', and a repair credit on your sale is money that stays with the buyer. Your amount realized is simply lower, and so is the amount your intermediary holds.

That has a planning effect. Because the credit lowers the net sale price, it also lowers the value you need to buy and the cash you need to reinvest to defer everything; the targets are on reinvesting the whole price or just the gain.

Paying for repairs out of the sale proceeds is different, because repairs are not exchange expenses

Some contracts have the seller pay a contractor at closing instead of crediting the buyer. Publication 544 says expenses on the closing statement such as 'property taxes, rent prorations, security deposits, and repairs' are not exchange expenses, so they cannot reduce the money you are treated as receiving on Form 8824 line 15.

Money spent from exchange proceeds to meet your own obligation is money you received the benefit of; Publication 544 says you actually receive money when you receive it 'or receive the economic benefit of the money or non-like-kind property'. Contrast the transactional items in Reg. section 1.1031(k)-1(g)(7)(ii), such as commissions, prorated taxes, transfer taxes and title fees, which the regulation disregards; the full list is on closing costs paid from exchange funds.

If the buyer wants work done, a price reduction or a credit is cleaner than a repair bill paid from proceeds. If you must pay a contractor, pay from your own funds outside the exchange.

A credit you receive on the replacement lowers your cost until it turns into cash in your hand

On the purchase side, a seller concession reduces what you pay, either against the price or against your closing costs. That lowers the replacement's basis but creates no money received, provided all of it is absorbed by the price and your own costs.

The problem is an oversized credit. If the credit exceeds what you owe at closing, the settlement statement shows cash due to the buyer, and that is money you received in a closing funded by exchange dollars. Credits for prorated rent and security deposits follow their own rules, covered in security deposits and rent prorations.

Worked example: a $20,000 credit given and a $25,000 credit received

Hypothetical, round numbers, no debt on either property; run your own numbers with your CPA. You contract to sell a rental for $800,000 and agree to a $20,000 repair credit after inspection. The net price is $780,000, your intermediary receives $780,000, and no boot arises; you now need to buy at least $780,000 and spend all $780,000.

You buy a $1,000,000 replacement, adding $220,000 of your own cash, and the seller gives you a $25,000 roof credit. Your title, escrow and recording costs are $15,000. The credit pays those and leaves $10,000 due to you at closing. That $10,000 is money received and recognized up to your realized gain, taxed first at up to 25% on the depreciation layer under Topic 409.

Restructure it as a $975,000 price, or a $15,000 credit with a $10,000 price reduction, and nothing comes back to you. You simply bring $10,000 less of your own cash.

Write the instruction to your escrow officer before closing, not after you see the statement

Ask for a draft settlement statement for both closings and check three lines: any amount 'due to seller' or 'due to buyer' that would be paid to you, any repair or contractor line paid from proceeds, and any credit larger than your own closing costs. Your intermediary should see the draft too; what the intermediary needs covers the paperwork.

If a credit leaves a small remainder you cannot avoid, a Delaware Statutory Trust interest already on your identification list can absorb leftover exchange cash to the dollar; see leftover cash after the exchange. Trust interests are illiquid and carry sponsor and tenant risk.