1031 Exchange Boot Calculator

Boot in a 1031 exchange is anything of value you receive that isn't like-kind real property. The two most common types are cash boot — leftover sale proceeds you don't reinvest — and mortgage boot, a net reduction in your debt load. Boot is taxable up to the amount of your realized gain. The rest of the gain still defers, so partial exchanges are common in real-world deals.

The calculation is straightforward: Cash boot equals your sale equity minus your replacement equity (both net of debt). Mortgage boot equals your old loan paid off minus your new loan taken on, when positive. Add them together for total boot, then cap that at your realized gain to get the taxable amount.

Suppose you sell a rental for $800,000 with $48,000 in selling expenses and pay off a $300,000 mortgage. Your equity from the sale is $452,000. You replace it with a $750,000 property carrying a $250,000 new mortgage — replacement equity of $500,000. Because your replacement equity exceeds your sale equity, you have zero cash boot.

Mortgage boot, however, is $300,000 − $250,000 = $50,000. With a realized gain of $450,000, the entire $50,000 of mortgage boot is taxable. At a 20% federal cap-gains rate that's $10,000 in tax owed today. The other $400,000 of gain defers into the new property's carryover basis.

The three rules of a fully tax-deferred 1031: buy equal or up in value, reinvest all equity, and take on equal or greater debt. Miss any one and you create boot. The most common stumble is mortgage boot: investors trade into a smaller loan thinking it doesn't matter, then discover the debt relief is taxable.

You can offset mortgage boot by adding outside cash to the replacement closing — every dollar of new cash cancels a dollar of debt relief in the boot math. Many investors deliberately add cash to nudge their boot to zero rather than pay tax on debt reduction.