Calculate taxable boot in a 1031 exchange including cash boot (proceeds not reinvested) and mortgage boot (debt relief exceeding new debt). Avoid unexpected taxes.
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.
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.
Cash Boot = Sale Proceeds − Purchase Price Equity Contributed Mortgage Boot = Old Mortgage − New Mortgage (if positive) Total Boot = max(0, Cash Boot) + max(0, Mortgage Boot) − Additional Cash Invested Taxable Boot = max(0, Total Boot) Boot Tax = Taxable Boot × (Capital Gains Rate + Depreciation Recapture Rate)
Result: Taxable Boot = $40,000
Sale: $400,000 with $200,000 mortgage = $200,000 equity. Purchase: $380,000 with $180,000 mortgage = $200,000 equity needed. Cash boot: $400,000 − $380,000 = $20,000 (price difference). Mortgage boot: $200,000 − $180,000 = $20,000 (debt reduction). Total boot: $40,000 taxable. At 23.8% (20% + 3.8% NIIT), that's $9,520 in taxes.
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.
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.
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.
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.
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.
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.
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.
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).
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.