Glossary

Boot

Any non-like-kind value received by an exchanger in a 1031 exchange — cash, debt relief, or non-qualifying property — that is immediately taxable to the extent of realized gain, even though the overall transaction otherwise qualifies for deferral.

Boot arises in two principal forms: 'cash boot,' where sale proceeds are not fully reinvested in replacement property (including any funds an exchanger pulls out at closing), and 'mortgage boot,' where the debt paid off on the relinquished property exceeds the debt placed on the replacement property and is not offset by additional cash contributed. To fully defer gain, an exchanger must generally acquire replacement property of equal or greater value and equal or greater debt, or contribute cash to make up any debt shortfall — a common misconception is that simply reinvesting all net equity is sufficient, when under-leveraging the replacement property relative to the relinquished property also creates mortgage boot. Boot does not disqualify the exchange itself; it simply carves out a taxable slice from an otherwise tax-deferred transaction.