What's "Boot"?

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In a 1031 exchange, "boot" refers to any form of value or property that is received by the taxpayer in the exchange that is not like-kind property. The term "boot" is used to describe the non-like-kind property that is either cash or debt relief (such as a mortgage or loan balance that is paid off) that a taxpayer might receive as part of the exchange process.

 

Here's a breakdown of the two main types of boot:

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1. Cash Boot: This happens when the investment property seller receives cash or its equivalent in the exchange, typically as part of a transaction where the value of the property they receive is less than the property they sold. If a seller receives cash as part of the transaction, that cash is considered boot.

2. Mortgage Boot: If the taxpayer is relieved of a debt that was associated with the property they sold (such as a mortgage), that debt relief is considered boot. It’s essentially like receiving cash since the taxpayer has less liability after the exchange.

 

Receiving boot can trigger taxable gain, meaning the seller may need to pay taxes on the amount of boot they receive, which is considered a partial disposition of the property. The goal of a 1031 exchange is to avoid taxes on capital gains, but any boot received is taxed at the time of the exchange.