The QI File

Recognition · not tax or legal advice

Boot in a 1031 exchange

“Boot” is the industry word for the cash or other non-like-kind property that makes an exchange not solely in kind. The Code’s rule is simpler than the slang: if you receive money or other property in addition to like-kind real property, you recognize gain up to that amount. Liability relief can be treated as money received. This page restates §1031(b), (c), and (d). It does not compute your Form 8824, and it does not invent a “typical boot” percentage.

What the Code actually says

IRC §1031(a)(1) defers gain or loss on an exchange solely of like-kind real property held for productive use in a trade or business or for investment. Subsection (b): if an exchange would be within (a) except that the property received consists not only of permitted property but also of other property or money, the gain, if any, is recognized — but only in an amount not in excess of the sum of such money and the fair market value of such other property.

Subsection (c): in that same not-solely-in-kind situation, no loss from the exchange is recognized. Subsection (d): replacement basis starts from the basis of the property exchanged, decreased by money received and increased by gain (or decreased by loss) recognized; other property takes a basis equal to its fair market value; and assumption of the taxpayer’s liability is considered money received.

Cash, paper, and debt

Cash paid to the taxpayer at closing, a note the taxpayer takes back, personal property that rides with the real estate above the incidental-property rule, and net mortgage relief are the usual fact patterns people call boot. The incidental-property 15 percent test in Treas. Reg. §1.1031(k)-1(c)(5) is an identification-counting rule. It is not a permission slip to take 15 percent cash tax-free. Seeidentification rules.

Unused exchange funds that the QI returns to the taxpayer after the exchange period are money received. That is a custody-and-tax intersection, not a QI fee. Who can release those funds iswho holds the money.

A partial exchange is still an exchange

§1031(b) is a recognition cap, not an all-or-nothing disqualification. Practitioners still have to satisfy identification, the exchange period, like-kind, holding purpose, and the constructive-receipt safe harbors. Related-party overlays can independently unwind nonrecognition. Seerelated-party rules.

Form 8824 is the IRS form that reports like-kind exchanges. This directory does not reprint the form or invent line-by-line instructions. Use the current IRS instructions.

FAQ

What is boot in a 1031 exchange?

“Boot” is practitioner slang for money or other non-like-kind property received in an exchange that would otherwise qualify under §1031(a). IRC §1031(b): if the property received consists not only of like-kind property but also of other property or money, gain is recognized to the extent of the money plus the fair market value of the other property. The Code does not use the word boot in §1031(b).

Does mortgage relief count as boot?

IRC §1031(d) treats the assumption of a taxpayer’s liability (as determined under §357(d)) as money received by the taxpayer on the exchange. Net debt relief can therefore be recognized like cash boot. Whether a particular loan assumption, wrap, or new mortgage nets to relief is a facts-and-counsel question this page will not compute.

If I receive boot, does the whole exchange fail?

Not under §1031(b) as written. Gain is recognized only up to the money and other non-like-kind property received. The exchange can still be a partial §1031. Loss is not recognized on a not-solely-in-kind exchange under §1031(c). Basis in the replacement property is adjusted under §1031(d).

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This page is not tax, legal, or investment advice.