Boot (1031 Exchange)

The Two Forms of Boot

• Cash Boot — Cash proceeds from the sale that you do NOT reinvest into the replacement property. Whatever cash you keep is taxable to the extent of recognized gain.
• Mortgage Boot (Debt Relief) — If you pay off MORE mortgage debt on the sale than you take on with the replacement, the net debt relief is mortgage boot — UNLESS offset by additional cash invested into the replacement.

The Two Rules to Avoid Boot

1. Buy equal or greater value. The replacement property purchase price must equal or exceed the relinquished property sale price (net of selling costs).
2. Reinvest all the cash. All net sale proceeds (after paying off existing debt and closing costs) must flow into the replacement property as down payment + closing costs.

Recognized Gain vs. Realized Gain

An important distinction: Realized gain is the full economic gain on the sale (sale price minus adjusted basis minus selling costs). Recognized gain is the portion of the realized gain that gets taxed in the current year. In a 1031 exchange with boot, recognized gain is the LESSER OF: (a) the boot amount, or (b) the realized gain. The boot caps the taxable amount — you don't pay tax on more gain than you actually have.

Strategies to Avoid Boot

• Buy a replacement property of equal or greater value than the relinquished property
• Take on debt at least equal to the debt paid off — OR offset reduced debt with additional cash investment
• Add new cash at the replacement closing if the replacement is smaller
• Identify a higher-value replacement during the 45-day window if your target shrinks
• Use a DST or fractional interest to absorb "extra" equity that would otherwise become cash boot
• Combine multiple replacement properties (up to 3 under the 3-Property Rule)

When Intentional Boot Makes Sense

Sometimes investors intentionally accept boot — for example, when the deferred federal tax on the boot is less than the cost of acquiring additional replacement value, or when an investor specifically wants cash out for redeployment outside the exchange. Florida investors benefit from a unique advantage here: federal tax only (no state tax). Coordinate with your CPA and 1031 advisor to model the boot vs. tax cost trade-off before committing.

What is boot in a 1031 exchange?

Boot is the taxable portion of a 1031 exchange. Two forms: cash boot (cash kept rather than reinvested) and mortgage boot (net debt relief not offset by new cash). The recognized gain in a boot situation is the lesser of the boot amount or the total realized gain.

How do I avoid boot in a 1031 exchange?

Two rules: (1) buy a replacement property of equal or greater value than the relinquished sale price, and (2) reinvest all net sale proceeds into the replacement. If you reduce debt at the replacement, offset the difference with additional cash invested.

Is mortgage boot really taxable if I have less debt on the replacement?

Yes — net debt relief is mortgage boot. But the mortgage boot can be offset by additional cash you contribute to the replacement closing. If sale debt was $1.5M and replacement debt is $1.2M, that's $300K of debt relief — but if you bring $300K additional cash, it offsets the boot fully.

Can I use a DST to absorb 1031 boot?

Yes — Delaware Statutory Trusts are commonly used to absorb fractional equity that would otherwise become cash boot. By placing the excess into a DST as a co-investment, the investor preserves full 1031 deferral. Common strategy in tight identification windows or for retirees who want partial passive ownership.

Who can help me calculate boot on a Florida 1031 exchange?

Michael R. Linton at Linton Global Solutions and 1031DealFlow.com model boot scenarios before identification — ensuring the structure achieves the intended tax result. Use our <a href="/calculators/1031-boot">1031 Boot Calculator</a> for a quick estimate. Call (312) 612-1031 for full coordination.

Article Summary

Boot is the taxable portion of a 1031 exchange — cash boot (proceeds kept) or mortgage boot (net debt relief not offset by additional cash). The two rules to avoid boot are to buy equal or greater value and reinvest all cash. When boot occurs, the recognized gain is the lesser of the boot amount or the total realized gain. Florida investors benefit from a federal-only tax exposure (no state cap gains). DSTs can absorb excess equity to preserve full deferral. Michael R. Linton at Linton Global Solutions models boot scenarios before identification on every Florida 1031 exchange.

Key Takeaways

• ✓Boot = cash boot (cash kept) + mortgage boot (net debt relief unoffset by new cash).
• ✓Two rules to avoid boot: buy equal/greater value, reinvest all cash.
• ✓Recognized gain = lesser of boot amount or total realized gain.
• ✓Mortgage boot can be offset by additional cash invested into the replacement.
• ✓DSTs commonly absorb excess equity to preserve full 1031 deferral.
• ✓Florida investors face federal tax only on boot — no state cap gains.
• ✓Intentional boot can make sense in some scenarios — model the trade-off.
• ✓Plan boot at LOI stage — not at closing. Options narrow rapidly.

About Michael R. Linton

Michael R. Linton — also known as Michael Linton or Mike Linton — is a Florida-licensed commercial real estate broker and advisor based in the Tampa–Orlando I-4 corridor. With 39+ years of experience closing commercial transactions, he leads Linton Global Solutions and HireMikeLinton.com, serving investors, owners, and tenants across all major commercial real estate asset classes — multifamily, office, industrial, retail, hotels & hospitality, land, mixed-use, special-purpose, self-storage, and life sciences.

Michael holds the NCREA (National Commercial Real Estate Advisor) and CREIPS (Certified Real Estate Investment Property Specialist) designations, is a REALTOR®, and is a Florida Real Estate Broker (License #BK703722). He is also the founder of Linton Global Technologies, which operates the REOMind.ai AI-powered REO disposition platform serving 500+ banks.

Ready to Talk About Your Boot (1031 Exchange) Deal?

Get a free consultation with Michael R. Linton — 39 years of Central Florida CRE experience. Zero pressure.

Works Cited

1. Internal Revenue Service. "Like-Kind Exchanges (Section 1031)." IRS, https://www.irs.gov/businesses/small-businesses-self-employed/like-kind-exchanges-real-estate-tax-tips. Accessed Jun 7, 2026.
2. Internal Revenue Service. "Publication 544, Sales and Other Dispositions of Assets." IRS, https://www.irs.gov/publications/p544. Accessed Jun 7, 2026.
3. Federation of Exchange Accommodators. "1031 Exchange Resources." FEA, https://www.1031.org/. Accessed Jun 7, 2026.
4. Internal Revenue Service. "Form 8824 — Like-Kind Exchanges." IRS, https://www.irs.gov/forms-pubs/about-form-8824. Accessed Jun 7, 2026.
5. Florida Department of Revenue. "Florida Tax Information." Florida DOR, https://floridarevenue.com/. Accessed Jun 7, 2026.

Disclosure & Compliance

Disclosure: This article discusses proprietary technology developed by Linton Global Technologies. Michael R. Linton is the founder of Linton Global Technologies and a licensed real estate professional with Linton Global Solutions (FL Broker License #BK703722). This content is for informational purposes only and does not constitute investment, legal, or financial advice.

Compliance Statement: All CREDDS and REOMind.ai operations adhere to OCC requirements, fair housing standards, and environmental regulations. Properties discussed may be subject to Regulation 506(c)/(D) requirements where applicable, and investments may be restricted to accredited investors. Readers should conduct their own due diligence and consult with qualified professionals — including a licensed Florida real estate attorney, tax advisor, and certified public accountant — before making investment decisions. Past performance does not guarantee future results.