What Is Boot in a 1031 Exchange?
“Boot” is the taxable portion of a 1031 exchange — the part of the gain that gets recognized (and taxed) even when the rest of the exchange qualifies for tax deferral. Two forms:
- Cash Boot — Cash proceeds you keep rather than reinvest into the replacement property.
- Mortgage Boot — Net debt relief: if you pay off more mortgage debt on the sale than you take on with the purchase, the difference is mortgage boot (unless offset by additional cash invested).
The Two Rules to Avoid Boot
- Buy equal or greater value. The replacement property must equal or exceed the sale price.
- Reinvest all the cash. All net sale proceeds must go into the replacement property.
Violating either rule creates boot. Recognized gain is the lesser of the boot amount or the realized gain on the sale.
Florida's Tax Advantage
Florida has no state capital gains tax, so the only tax you defer (or pay if you take boot) is federal. For Florida investors, this calculator's estimated tax is your full exposure — assuming no NIIT or AMT issues.
Strategies to Avoid Boot
- Buy a property of equal or greater value than the sale
- Take on at least equal debt — or offset reduced debt with new cash
- Add new cash to the closing if the replacement is smaller
- Identify a higher-value replacement during the 45-day window if your original target shrinks
- Use a DST or fractional interest to absorb “extra” equity that would otherwise become cash boot
See the Capital Gains Tax Calculator for full tax modeling, and grab the free 1031 Exchange Investor Toolkit PDF.