Visual guide showing all the ways taxable boot can be triggered in a 1031 exchange with strategies to avoid each type
Understanding boot triggers is essential for successful 1031 exchanges. This comprehensive guide covers cash boot, mortgage boot, and non-like-kind property boot, providing investors with the knowledge needed to avoid taxable events during their exchange.
"Boot" is the enemy of tax-deferred exchanges. It's any value you receive in a 1031 exchange that isn't like-kind property—and it's fully taxable in the year of the exchange.
Many investors unknowingly trigger boot by taking cash out, reducing debt, or receiving non-real estate items. This guide shows you every type of boot trigger, why it's taxable, and exactly how to avoid it.
Whether you're planning your first exchange or executing your tenth, use this visual guide to structure deals that maximize tax deferral and minimize unnecessary taxes.
Cash boot occurs when you receive cash or fail to reinvest all proceeds into like-kind property.
Receiving cash proceeds instead of reinvesting all funds through your Qualified Intermediary.
Receiving cash proceeds instead of reinvesting all funds through your Qualified Intermediary.
Cash is not like-kind property under IRC Section 1031
Trading down in property value without adding offsetting cash.
Trading down in property value without adding offsetting cash.
The difference between what you sold and what you bought is treated as cash received
Using exchange proceeds to pay personal or non-exchange expenses.
Using exchange proceeds to pay personal or non-exchange expenses.
These payments are constructive receipt of cash
Mortgage boot (debt relief boot) occurs when you take on less debt on your replacement property than you paid off on your property being sold.
Replacement property mortgage is lower than property being sold mortgage.
Replacement property mortgage is lower than property being sold mortgage.
Debt relief is treated as cash received by IRS
Paying off mortgage on sale, then buying replacement property with cash.
Paying off mortgage on sale, then buying replacement property with cash.
Entire debt relief becomes boot
Refinancing to pull cash shortly before selling.
Refinancing to pull cash shortly before selling.
IRS may recast as boot if timing suggests avoidance intent
Non-like-kind boot occurs when you receive property that does not qualify as real estate held for investment or business use.
Receiving furniture, equipment, or fixtures in the exchange.
Receiving furniture, equipment, or fixtures in the exchange.
Personal property is not like-kind to real estate (post-2017 TCJA)
Including vehicles, boats, equipment, or inventory in transaction.
Including vehicles, boats, equipment, or inventory in transaction.
Only real property qualifies for 1031 treatment
Exchanging into property for personal use (primary residence, vacation home).
Exchanging into property for personal use (primary residence, vacation home).
Must be held for investment or business use
Connect with a qualified intermediary who can help you structure your exchange to avoid taxable boot