704(c) to 1031 Exchange

[BarbaCFO]

Hi all...A and B form an LLC AB in 2019.  A contributes $500 K real estate with a basis of $290 K and no mortgage.  B contributes $4 K.  They take out $250 K mortgage which is distributed to A.  B guarantees the mortgage.  Going forward they split profits 50/50.  The property in AB is rented to a related operating company which are also equally owned by A and B.  I treated the $500 K - $290 K = $210 K as an unrecognized section 704(c) gain to A.  

2024, B sold his equity in operating company back to A.  AB is selling the property owned within AB for $650 K.  A would like to do a 1031 exchange.

Can A's unrecognized 704(c) gain be deferred as part of the 1031 exchange?  Or is the $250 K previously received now considered boot?

[sjrcpa]

"Or is the $250 K previously received now considered boot?"

No. It was a debt financed distribution then, unless it was a disguised/deemed sale then.