What is boot, and how is it taxed in a 1031 exchange?
Boot is any value you receive in a 1031 exchange that isn’t like-kind real estate — most commonly leftover cash ("cash boot") or a reduction in your mortgage debt ("mortgage boot"). Boot doesn’t disqualify the exchange, but it is taxable up to the amount of your gain. To fully defer tax you generally must reinvest all your net proceeds and replace all of the debt you had.
Cash boot happens when you pocket some of the sale proceeds instead of reinvesting them. Mortgage boot happens when the loan on your new property is smaller than the loan on the old one — the IRS treats that debt relief as if you received cash.
You can offset mortgage boot by adding your own cash to the purchase, but you can’t offset cash boot by taking on more debt. Estimate your likely boot with the boot calculator, and read the full boot definition.
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General education — not tax or legal advice. This explains how §1031 exchanges work in general terms and uses simplified assumptions. Rules and tax rates change and your situation is specific. Talk to a qualified CPA or tax attorney before you rely on any of it. See our full terms & legal notice.