1031 Exchange Boot Calculator

About the 1031 Exchange Boot Calculator

In a 1031 exchange, "boot" is any value received by the exchanger that isn't like-kind property. Boot is taxable even in an otherwise tax-deferred exchange. There are two types: cash boot (proceeds from the sale not reinvested in the replacement property) and mortgage boot (net debt relief when the new mortgage is smaller than the old one).

To achieve a fully tax-deferred exchange, you must reinvest ALL of the net proceeds and take on equal or greater debt on the replacement property. If you take cash out or reduce your mortgage, the difference is boot — and it's taxed as capital gain.

This calculator determines whether your planned exchange will generate taxable boot and, if so, how much tax you'll owe. It analyzes both cash boot and mortgage boot separately, then combines them for the total taxable amount. Understanding boot before you close is critical to structuring the exchange correctly.

When This Page Helps

Many investors accidentally trigger taxable boot by purchasing a slightly less expensive replacement property or by taking on less debt. The tax bill on boot can be substantial — up to 20% capital gains plus 3.8% NIIT plus state taxes plus 25% depreciation recapture. This calculator helps you structure the exchange to minimize or eliminate boot.

How to Use the Inputs

1. Enter the sale price of the relinquished (sold) property.
2. Enter the existing mortgage balance on the relinquished property.
3. Enter the purchase price of the replacement property.
4. Enter the new mortgage amount on the replacement property.
5. Enter any additional cash invested from outside funds.
6. View the boot calculation showing cash boot, mortgage boot, and total taxable amount.

Example Calculation

Tips & Best Practices

• To avoid boot entirely, reinvest all proceeds and take on equal or greater debt.
• You can offset mortgage boot by adding additional cash from outside the exchange.
• Purchase a property of equal or greater value than the one you sold.
• Cash boot can come from closing cost credits, prorated rents, or security deposits.
• Mortgage boot is calculated at closing — refinancing the replacement later doesn't create boot.
• Work with a 1031 exchange specialist CPA to structure the transaction before closing.

Cash Boot vs Mortgage Boot

Cash boot occurs when you don't reinvest all sale proceeds into the replacement property. If you sell for $400,000 but the replacement costs only $350,000, the $50,000 difference is cash boot. Mortgage boot occurs when you reduce your debt level. If you owed $200,000 on the old property but only borrow $150,000 on the new one, the $50,000 debt reduction is mortgage boot.

Offsetting Boot with Additional Cash

You can eliminate mortgage boot by contributing additional cash from outside the exchange to make up the difference. This is the most common strategy for investors trading into properties with lower price points or better equity positions. The key is planning this before closing so you have funds ready.

Common Boot Traps

Several items at closing can unexpectedly create boot: prorated rents credited to the buyer, security deposit transfers, personal property included in the sale (appliances, furniture), closing cost adjustments, and repair credits. Work with an experienced QI and CPA to review the settlement statement line by line before closing.

Frequently Asked Questions

• What is boot in a 1031 exchange?

  Boot is any non-like-kind property received in the exchange. The two most common types are cash boot (sale proceeds not reinvested) and mortgage boot (net debt relief). Boot is taxable: capital gains rates apply to profit, and depreciation recapture is taxed at 25%. The remaining exchange amount is still tax-deferred.

• How can I avoid mortgage boot?

  Take on an equal or greater mortgage on the replacement property, or contribute additional cash to make up the difference. For example, if your old mortgage was $200,000 and the new one is $150,000, you can contribute $50,000 in cash to eliminate the $50,000 mortgage boot.

• Does receiving prorated rent at closing create boot?

  Yes. If the seller credits you prorated rent, security deposits, or other non-property items at closing, these can be considered boot. Work with your QI and CPA to structure the settlement statement to minimize these items or account for them in the exchange.

• Can I do a partial 1031 exchange?

  Yes. You can choose to receive some boot (cash out) and still defer taxes on the remaining reinvested amount. This is called a partial exchange. You only pay tax on the boot received, not on the entire gain. This can be useful if you need some liquidity from the sale.

• How is boot taxed?

  Boot is taxed as capital gain: 15–20% federal capital gains rate (depending on income), plus 3.8% Net Investment Income Tax (NIIT) for high earners, plus applicable state taxes. Any boot attributable to previously claimed depreciation is taxed at 25% (depreciation recapture).

• Is paying closing costs on the replacement property considered boot?

  Closing costs that are considered transaction expenses (title, escrow, commissions) can generally be paid from exchange funds without creating boot. However, costs like loan origination fees, insurance premiums, and property taxes may be treated as boot. Consult your QI for guidance on which costs are exchange-eligible.