What Is "Boot" in a 1031 Exchange — and How Does It Get Taxed?

"Boot" is the leftover cash or non-like-kind value in a 1031 exchange that doesn't get reinvested — and it's taxable.

Why it matters: Boot is the single most common way sellers accidentally blow a clean tax deferral. It's not usually intentional — it happens when someone takes a little cash off the top, pays off more mortgage debt than they replace, or uses exchange funds for something that isn't a qualifying transaction cost. For a business owner who also owns their real estate, this matters most at the moment the property and the business are sold in the same transaction or close together: it's easy to let sale proceeds get commingled, and commingling is exactly what triggers boot. The fix is structural, not clever — keep the exchange funds untouched and routed through a qualified intermediary, full stop.

What triggers boot

• Cash taken out of the deal.
• A reduction in mortgage debt on the replacement property versus the property sold.
• Receiving non-like-kind property as part of the deal.
• Paying non-transaction costs (like tenant deposits) out of exchange funds.

Example: If you sell a property for $300,000 but only reinvest $250,000, the $50,000 difference is boot, taxed at your capital gains rate — even though the rest of the exchange qualifies for deferral.

Related terms: 1031 Exchange, Qualified Intermediary, Depreciation Recapture