1031 Boot Calculator

How to calculate boot in a 1031 exchange

A 1031 exchange defers the tax when you trade real estate held for investment or business use for other real estate. Anything else you receive in the trade is boot, and boot is taxable, up to your gain. There are two common kinds.

1. Cash boot

Cash boot is exchange money that does not go into the replacement property: cash you take at closing, money the intermediary releases to you, or exchange funds spent on things that are not transaction costs. Start with your equity after the sale (price, minus selling costs, minus the loan paid off). Subtract the equity the replacement uses (its price, minus the new loan, minus any cash you add). What is left over is cash boot. The calculator does that math unless you uncheck the box and type your own figure.

2. Mortgage boot (debt relief)

When the loan paid off on the old property is larger than the loan on the new one, the difference is treated like cash you received. Under Treasury Regulation 1.1031(d)-2, two things can offset that debt relief: new debt you take on and cash you add from outside the exchange. So mortgage boot is the old loan, minus the new loan, minus cash added, but never less than zero.

The netting only runs one way. Taking a bigger new loan does not cancel cash you take out. Example 2 of that regulation makes the point: new debt offsets debt relief, not cash received. That is why "just borrow more on the new building" does not fix cash boot.

3. Recognized gain, character and basis

• Realized gain is the sale price minus selling costs minus adjusted basis.
• Recognized gain is the lesser of total boot or realized gain. If boot is larger than the gain, only the gain is taxed.
• Character. Section 1245 recapture (cost segregation and bonus depreciation) comes first and is ordinary income. Next is unrecaptured Section 1250 gain from building depreciation, taxed at up to 25%. The rest is long-term capital gain.
• Deferred gain is realized gain minus recognized gain. It carries into the new property.
• Basis of the replacement is its price minus the deferred gain.

A worked example

With the starting numbers above: you sell for $3,000,000 with $150,000 of costs and an $800,000 loan, so your equity is $2,050,000. The $2,400,000 replacement uses a $500,000 loan and $100,000 of your own cash, so it needs $1,800,000 of exchange equity. The $250,000 left over is cash boot. The old loan was $800,000; the new loan and added cash replace $600,000 of it, so mortgage boot is $200,000. Total boot is $450,000. Realized gain is $1,850,000, so all $450,000 is recognized, starting with the $400,000 of building depreciation. The other $1,400,000 is deferred, and the new property's basis is $1,000,000.

Taking boot as cash vs spreading it

Cash boot is taxed in the year of the exchange, stacked on your other income. If you know before closing that some equity will not be reinvested, that part can sometimes be carved out of the exchange and taken as an installment note instead, so the gain is reported as principal arrives (Section 453(f)(6)). The comparison line above runs the same boot through this site's installment engine. Only cash boot can be spread; mortgage boot is received at closing. The carve-out must be written into the contract and escrow instructions before closing and must never pass through the qualified intermediary, or the whole exchange is at risk. Get exchange counsel first.

What this calculator leaves out

It assumes a single relinquished and a single replacement property, both real estate held more than a year, and the tax tables for 2026. It does not model personal property in the trade, the Section 1245(b)(4) rule that can create recapture with no boot when a cost-segregated building is traded for one with fewer Section 1245 parts, partial-year exchanges across tax years, alternative minimum tax, passive loss carryforwards or local taxes. For more, read 1031 boot explained and using an installment sale for 1031 boot, or the book at thewaterfallstrategy.com.

Keep going

• Installment sale calculator: cash sale vs seller financing vs a structured installment sale.
• Seller financing calculator: the note and the seller's tax by year.
• 1031 boot and depreciation recapture in a 1031 exchange.