# 1031 Boot Calculator: Cash Boot, Mortgage Boot, and How Much to Reinvest

> Estimate 1031 exchange boot. Learn cash boot, mortgage boot, netting rules, selling costs, and how much equity and debt to replace to defer your gain.

Source: https://baker1031.com/tools/1031-boot-calculator


By Jerry Baker, Founder, Baker 1031 Investments. Published October 24, 2026; updated October 24, 2026. Interactive calculator: https://baker1031.com/tools/1031-boot-calculator

Boot is any cash, debt relief, or other non-like-kind value you get in a 1031 exchange, and it can be taxable. As a rule of thumb, to defer all of your gain on a $1,000,000 sale with $60,000 in selling costs, you'd buy at least $940,000 of replacement property and reinvest every dollar of your equity.

## How the calculator works

1. Net sale price = sale price − selling costs.
2. Net equity (exchange proceeds) = net sale price − mortgage or other debt paid off at closing.
3. To defer all of the gain, buy replacement property worth at least the net sale price and reinvest all of the net equity.
4. Equity reinvested = replacement price − new debt − cash you add, up to the net equity.
5. Cash boot = net equity − equity reinvested.
6. Mortgage boot = debt paid off − new debt − cash added (never below zero). Added cash can offset debt relief; new debt can't offset cash you take out.
7. Total boot = cash boot + mortgage boot. Boot is taxable up to your gain on the sale.

Results are estimates for education, not tax or legal advice.

## Key takeaways

- There are two main kinds of boot. **Cash boot** is equity you don't reinvest. **Mortgage boot** is debt paid off on your sale that you don't replace with new debt or added cash.
- To defer all of your gain, a common target is to buy replacement property worth at least your net sale price and reinvest all of your net equity.
- Netting works one way. Cash you add can offset mortgage boot. But new debt does not offset cash you keep.
- Taxable boot is generally capped at your realized gain. Boot doesn't kill the exchange. It usually means part of your gain is taxed now and the rest is still deferred.
- You can replace debt with your share of a DST's loan, with your own added cash, or with a mix. Each choice has trade-offs.
- This page is for education only. Confirm your numbers with your CPA, attorney, and qualified intermediary before you act.

## What is boot in a 1031 exchange?

Let me start with the basic terms. I'll define each one the first time I use it.

A **1031 exchange** lets you sell investment real estate and buy other investment real estate while putting off the tax on your gain. The name comes from Section 1031 of the Internal Revenue Code. The tax is deferred, not erased.

The **relinquished property** is the property you sell. The **replacement property** is the property you buy.

**Boot** is the informal name for anything you receive in an exchange that isn't like-kind real estate. The tax code doesn't use the word. It talks about "other property or money." If you receive it, gain is recognized, but only up to the amount of that money and the value of the other property, under [26 U.S.C. § 1031(b)](https://www.law.cornell.edu/uscode/text/26/1031).

The IRS sums it up in its [fact sheet on like-kind exchanges](https://www.irs.gov/pub/irs-news/fs-08-18.pdf): "If you receive cash, relief from debt, or property that is not like-kind," you may trigger some taxable gain. The same fact sheet adds that gain "may be taxable, but only to the extent of the proceeds that are not like-kind property."

**Recognized gain** is the part of your gain you pay tax on now. **Deferred gain** is the part you put off.

A **qualified intermediary**, or QI, is the company that holds your sale money during the exchange. You never touch it. That's important for boot too. Money the QI pays out to you is generally cash boot.

## What is the difference between cash boot and mortgage boot?

There are two common kinds of boot. Most exchanges that go wrong on boot go wrong on one of these.

### Cash boot

**Cash boot** is sale money you don't reinvest. Maybe you take some cash out to pay off a credit card or put a down payment on a home. Maybe your replacement property simply costs less than the money your QI holds, and the extra comes back to you. Either way, the cash you receive can be taxable.

### Mortgage boot

**Mortgage boot**, also called debt relief, happens when the loan on your old property is paid off and you don't replace it. The tax code treats debt relief like cash. When another party takes over your liability, the code says "such assumption shall be considered as money received by the taxpayer on the exchange," under [Section 1031(d)](https://www.law.cornell.edu/uscode/text/26/1031). IRS [Publication 544](https://www.irs.gov/publications/p544) says the same idea for sales in general: the amount you realize "includes any of your liabilities that were assumed by the buyer and any liabilities to which the property you transferred is subject, such as real estate taxes or a mortgage."

Here's the plain-English version. When your $400,000 loan gets paid off at closing, the IRS sees that as $400,000 of value you received. To balance it, you generally need $400,000 of debt on the replacement side, or $400,000 of your own new cash, or a mix.

### Other boot

Boot can also be non-real-estate property, like furniture or equipment that comes with a building. It can be a note from the buyer. My calculator focuses on cash and mortgage boot, which are by far the most common.

## How does boot netting work?

**Netting** means letting one side of the exchange offset the other. The rules are specific, and they only work in one direction. They come from the Treasury regulation on liabilities, [26 CFR § 1.1031(d)-2](https://www.law.cornell.edu/cfr/text/26/1.1031(d)-2).

### Cash you add offsets mortgage boot

The regulation says "consideration given in the form of cash or other property is offset against consideration received" in the form of an assumption of liabilities. In plain terms, if you bring new cash from your own pocket, it can make up for debt you don't replace.

Say your old loan of $400,000 was paid off. Your new loan is only $300,000. That's a $100,000 gap. If you add $100,000 of your own cash to the purchase, the gap is filled. Your mortgage boot is zero.

### New debt does not offset cash you keep

Here's the other direction. The regulation says "consideration received in the form of cash or other property is not offset by consideration given" in the form of an assumption of liabilities.

In plain terms, taking on a bigger loan doesn't cancel cash you take out. Say you keep $50,000 of sale money and then borrow $50,000 more on the new property to make up the price. You still have $50,000 of cash boot. The extra debt doesn't erase it.

This trips people up because it feels like it should balance. It doesn't. If you need cash, it's usually better to plan for it with your CPA than to try to "borrow it back" inside the exchange.

### A quick summary

| What happens | Can it offset mortgage boot? | Can it offset cash boot? |
|---|---|---|
| You take on new debt on the replacement property | Yes | No |
| You add your own cash to the purchase | Yes | No |
| You keep some sale money | No, it is cash boot | It is the cash boot |
| Selling costs that count as exchange expenses | They reduce boot, as reported on Form 8824 | They reduce boot, as reported on Form 8824 |

The [Form 8824 instructions](https://www.irs.gov/instructions/i8824) follow the same logic. On line 15, you add cash paid to you, the value of other property you received, and "net liabilities assumed by the other party." That last item is the excess of liabilities relieved over the total of "any liabilities you assumed," "cash you paid to the other party," and the value of other property you gave up.

## Which selling costs reduce boot, and which don't?

Selling costs matter because they lower the amount you have to reinvest. They can also reduce boot.

The Form 8824 instructions say to reduce the boot amount on line 15 "(but not below zero) by any exchange expenses you incurred." **Exchange expenses** are the normal costs of selling and buying in the exchange.

The Treasury regulation on deferred exchanges gives examples of **transactional items**, meaning costs that relate to selling the old property or buying the new one and that normally show up on a closing statement. It lists "commissions, prorated taxes, recording or transfer taxes, and title company fees," in [26 CFR § 1.1031(k)-1(g)(7)](https://www.law.cornell.edu/cfr/text/26/1.1031(k)-1).

Here's how I think about it with clients. Treat this as a starting point, not a ruling.

| Cost | Usually treated as an exchange or selling cost? | Notes |
|---|---|---|
| Broker commissions | Generally yes | Listed as a transactional item in the regulation |
| Title company and escrow fees | Generally yes | Title company fees are listed |
| Recording and transfer taxes | Generally yes | Listed in the regulation |
| QI fees | Often yes | Ask your CPA |
| Attorney fees for the sale or exchange | Often yes | Ask your CPA |
| Loan fees and points on a new loan | Ask your CPA | These relate to financing, not the property itself |
| Security deposits or prepaid rents credited to the buyer | Ask your CPA | These can be treated differently |
| Repairs, utilities, or insurance paid at closing | Ask your CPA | Often treated as operating costs, not exchange costs |

The rule of thumb is simple. If an item is part of selling or buying the property, it usually counts. If it's really about running the property or getting a loan, ask your CPA before you count it. The calculator lets you enter selling costs as one number. Enter only the costs your CPA agrees count.

There's another reason to watch these items. If your QI pays a cost that isn't a transactional item, that payment can be treated like cash paid to you. Your QI and CPA can tell you how to handle each line on your settlement statement.

## How much do I need to reinvest to defer all of my gain?

Here's the target most investors use. To defer all of your gain, you generally need to do two things:

1. **Buy replacement property worth at least your net sale price.** Your net sale price is the sale price minus your selling costs.
2. **Reinvest all of your net equity.** Your net equity is your net sale price minus the debt paid off at closing. This is roughly the money your QI holds.

If you do both, you've usually replaced all your debt too. That's because the replacement value is made up of the equity you put in plus the debt you take on plus any cash you add. If equity is fully reinvested and the value matches, the debt side is covered.

Let's see the numbers. Say you sell for **$1,000,000**. Your selling costs are **$60,000**. Your loan payoff is **$400,000**.

- Net sale price = $1,000,000 − $60,000 = **$940,000**
- Net equity = $940,000 − $400,000 = **$540,000**
- Minimum replacement value = **$940,000**
- Debt to replace = **$400,000**, with new debt, added cash, or both

So you'd reinvest all $540,000 and buy at least $940,000 of property. That might be $540,000 of equity plus $400,000 of new debt. Or $540,000 of equity, $300,000 of new debt, and $100,000 of your own cash.

My [guide to how I build your 1031 exchange solution](/writing/how-i-build-your-1031-exchange-solution) walks through how I set these targets on the first call.

## What does boot look like in real numbers?

Let's use the same hypothetical sale and walk through five outcomes. Same sale price ($1,000,000), selling costs ($60,000), and loan payoff ($400,000). Net sale price is $940,000. Net equity is $540,000.

| Scenario | Equity reinvested | New debt | Cash added | Replacement value | Cash boot | Mortgage boot | Taxable boot estimate |
|---|---|---|---|---|---|---|---|
| A. Full replacement | $540,000 | $400,000 | $0 | $940,000 | $0 | $0 | $0 |
| B. Keep a little, borrow a little less | $520,000 | $380,000 | $0 | $900,000 | $20,000 | $20,000 | $40,000 |
| C. All-cash replacement | $540,000 | $0 | $0 | $540,000 | $0 | $400,000 | $400,000 |
| D. Less debt, add cash | $540,000 | $300,000 | $100,000 | $940,000 | $0 | $0 | $0 |
| E. Keep cash, borrow more | $490,000 | $450,000 | $0 | $940,000 | $50,000 | $0 | $50,000 |

Here's what each one teaches.

**Scenario A** is the clean case. Every dollar of equity goes back in. All of the debt is replaced. The estimated boot is zero.

**Scenario B** shows how small gaps add up. You kept $20,000. You also borrowed $20,000 less than you paid off. That's $40,000 of boot. Even though the property is only $40,000 short of the target, both kinds of boot show up.

**Scenario C** is the one I see most often in first conversations. Someone wants to go "all cash, no more loans." That's a fair goal. But putting $540,000 into a debt-free property leaves $400,000 of debt unreplaced. Unless you add $400,000 of your own cash, that's mortgage boot. If your realized gain is less than $400,000, the cap on taxable boot would come into play. More on that below.

**Scenario D** shows netting in your favor. Your new loan is $100,000 smaller than the old one. But you added $100,000 of your own cash. The cash offsets the mortgage boot.

**Scenario E** shows netting that doesn't work. You kept $50,000. You borrowed $50,000 more than you paid off. The property value hits the target. But the extra debt doesn't offset the cash you kept. You still have $50,000 of cash boot.

## Is boot capped at my gain?

Yes. Taxable boot is generally limited to your **realized gain**. Realized gain is roughly your net sale price minus your **adjusted basis**. Your adjusted basis is roughly what you paid, plus improvements, minus depreciation you've taken.

Section 1031(b) limits recognized gain to the money and the value of other property you receive, and you can't recognize more gain than you have. So if your gain is smaller than your boot, you pay tax only on the gain.

Here's a quick example. Say your adjusted basis is $910,000. Your net sale price is $940,000. Your realized gain is $30,000. In Scenario B, your boot is $40,000. But your taxable amount is capped at $30,000, the full gain.

Here's another. Say your adjusted basis is $500,000. Your realized gain is $440,000. In Scenario B, the full $40,000 of boot would be taxable. The other $400,000 of gain stays deferred.

Boot can also be taxed in different ways. Some of it may be taxed as depreciation recapture, some as capital gain, and states have their own rules. Your CPA will sort that out. If you want a rough sense of what's at stake, my [1031 tax deferral calculator](/tools/1031-tax-deferral-calculator) estimates the tax you might defer.

## How can I replace debt in a 1031 exchange?

If you paid off a loan when you sold, you have three main ways to replace it.

### Option 1: Take a new loan on a direct purchase

If you buy a property on your own, you can borrow against it. This works well if you want to own and manage property directly. It also means you sign a loan, may give a personal guarantee, and must close the loan by your exchange deadline.

### Option 2: Use your share of a DST's loan

A **Delaware statutory trust**, or DST, is a trust that owns real estate. Investors buy beneficial interests in the trust. In [Revenue Ruling 2004-86](https://www.irs.gov/pub/irs-drop/rr-04-86.pdf), the IRS said "a taxpayer may exchange real property for an interest in the Delaware statutory trust," if the other requirements of Section 1031 are met. My guide on [what a Delaware statutory trust is](/writing/what-is-a-delaware-statutory-trust-dst) covers how they work.

Some DSTs have a loan at the trust level. When you invest, your share of that loan is generally counted as debt on your replacement side. You don't sign the loan yourself. Confirm the treatment with your CPA.

**Loan-to-value**, or LTV, is the loan divided by the property value. If a DST has a 50% LTV and you invest $100,000 of equity, your share of the property is about $200,000. Your share of the debt is about $100,000.

### Option 3: Add your own cash

You can bring cash from outside the exchange. Under the netting rules, added cash can offset mortgage boot. This works for people who have cash on hand and don't want debt. The trade-off is that the cash is now tied up in an illiquid investment.

### Mixing DSTs to hit a debt target

Many of my clients blend debt-free and leveraged DSTs. Here's a hypothetical using the same sale.

- **DST 1** has no debt. You invest $140,000. Your share of the property is $140,000. Your share of debt is $0.
- **DST 2** has a 50% LTV. You invest $400,000 of equity. Your share of the property is $800,000. Your share of the debt is $400,000.

| | DST 1 (no debt) | DST 2 (50% LTV) | Total | Target |
|---|---|---|---|---|
| Equity invested | $140,000 | $400,000 | $540,000 | $540,000 |
| Your share of debt | $0 | $400,000 | $400,000 | $400,000 |
| Your share of property value | $140,000 | $800,000 | $940,000 | $940,000 |

On paper, this meets both targets. But think about the trade-off. Most of your money is now in a leveraged DST. Debt can make gains bigger in good times and losses bigger in bad times. Under the DST rules, the trustee generally can't renegotiate the loan or take in new money from investors. If income falls, the lender still has to be paid.

So the math shows what's possible. Your comfort with risk shows what's right for you. Sometimes the better plan is to accept a little boot rather than take on debt you don't want. That's a valid choice, made with your CPA.

## What is a partial exchange?

A **partial exchange** is an exchange where you choose to take some boot on purpose. Part of your gain is taxed now. The rest is deferred.

People do this for good reasons:

- They need cash for a home, a business, or family needs.
- They want less debt than they had before.
- They can't find enough replacement property they like before the deadline.

A partial exchange is still a 1031 exchange. The boot is taxed. The rest of the gain carries over into the new property through your basis. [Form 8824](https://www.irs.gov/forms-pubs/about-form-8824) is the IRS form used to report "each exchange of business or investment property for property of a like kind," including the boot.

One timing note. If you plan to take cash out, talk to your QI before closing. Your exchange agreement may limit when the QI can release money. The rules on when money can come out are tight. My [1031 exchange deadline calculator](/tools/1031-exchange-deadline-calculator) explains the 45-day and 180-day periods that control the timing.

## How do I figure my boot step by step?

Here's the process I walk through with clients. You can follow it with the calculator on this page.

### Step 1: Get your settlement statement

Ask your escrow or closing agent for the draft or final settlement statement. It shows the sale price, costs, and loan payoff.

### Step 2: Find your sale price

Use the contract sale price for the relinquished property.

### Step 3: Add up selling costs that count

List the commissions, title fees, transfer taxes, and other costs your CPA agrees are exchange expenses. Leave out items like loan fees, deposits, and repairs unless your CPA says they count.

### Step 4: Find the debt paid off

Use the loan payoff amount at closing. Include every loan on the property that was paid off.

### Step 5: Figure your targets

Subtract selling costs from the price to get your net sale price. That's your minimum replacement value. Subtract the debt paid off to get your net equity. That's the money to reinvest.

### Step 6: Plan your replacement

Decide how much equity you'll reinvest, how much new debt you'll take on, and how much cash you'll add. Compare a few mixes, and weigh the risk of each one, not just the boot.

### Step 7: Run the calculator

Enter your numbers. Look at cash boot, mortgage boot, and the estimated total.

### Step 8: Review with your CPA

Bring the results to your CPA before you identify property. Ask about your adjusted basis, the cap at realized gain, and how any boot would be taxed.

### Step 9: Confirm after closing

When you close on your replacement, rerun the numbers with the final figures. Give your CPA the closing documents for Form 8824.

## How to use the calculator

The calculator on this page estimates your reinvestment targets and your boot. You enter six numbers. Here's what each one means, where to find it, and how to read the results.

### What each input means

**Sale price.** The price of the property you sold.

**Selling costs.** Commissions, title and escrow fees, transfer taxes, and other exchange expenses. Enter only the costs your CPA agrees count. Leave out loan fees, deposits, and repairs unless your CPA says otherwise.

**Debt paid off.** The loan balance paid off when you sold. If you had more than one loan on the property, add them together.

**Equity reinvested.** How much of your net equity you plan to put into replacement property. If you plan to reinvest it all, enter the full amount your QI holds.

**New debt.** The debt on the replacement side. If you buy a property with a loan, it's your new loan amount. If you buy a leveraged DST, it's your share of the trust's loan, which the offering documents can help you figure.

**Cash added.** Your own money from outside the exchange that you put toward the replacement. If you aren't adding any, enter zero.

### Where to find your numbers

Most of the numbers for your sale are on your settlement statement. The sale price is near the top. Selling costs are listed as charges to the seller. The loan payoff shows as a payoff to your lender. Your QI can confirm how much exchange money they hold, which is a good check on your net equity.

For the replacement side, the numbers come from your plan. For a direct purchase, your lender's loan estimate shows the new debt. For a DST, I can walk you through your share of the property value and the loan using the offering's private placement memorandum, the main document that explains the offering.

### How to read the results

The calculator shows a few things:

- **Net sale price.** Your sale price after selling costs. This is also your minimum replacement value, the least you'd buy to defer all of your gain under the common rule of thumb.
- **Net equity.** Your net sale price after the loan payoff. This is about what your QI holds and what you'd reinvest.
- **Cash boot.** Equity you don't reinvest.
- **Mortgage boot.** Debt paid off that you don't replace with new debt or added cash.
- **Taxable boot estimate.** Cash boot plus mortgage boot.

The netting rules are built in. Cash you add can shrink mortgage boot. New debt never shrinks cash boot.

The estimate is before the cap. Taxable boot is generally limited to your realized gain, and the calculator doesn't know your adjusted basis. So if your estimate looks large, ask your CPA what your realized gain is. Your actual tax could be lower.

### A worked example in plain words

Let's run Scenario B from earlier. You sold for $1,000,000. You paid $60,000 in selling costs. Your $400,000 loan was paid off. You plan to reinvest $520,000, take on $380,000 of new debt, and add no cash.

The calculator first takes your selling costs off the price. That leaves a net sale price of $940,000. That's the least you'd buy to defer all of your gain. Then it takes off the $400,000 loan payoff. That leaves $540,000 of net equity.

You plan to reinvest only $520,000 of that $540,000. So the calculator shows $20,000 of cash boot. On the debt side, you paid off $400,000 but took on only $380,000, with no cash added. So it shows $20,000 of mortgage boot. Together, your taxable boot estimate is $40,000.

Now say you add $20,000 of your own cash. The debt gap is filled, so mortgage boot drops to zero. Cash boot is still $20,000, because you still kept that much of your equity. Your estimate drops to $20,000. That's netting at work.

Now try it the other way. Keep cash added at zero, but raise your new debt to $420,000. You've now replaced more debt than you paid off, so mortgage boot is zero. But cash boot is still $20,000. The extra debt didn't touch the cash you kept.

The fix in this example is simple. Reinvest the full $540,000 and replace the full $400,000 of debt, and the estimate goes to zero.

## Mistakes to avoid

These are the boot mistakes I see most.

### Forgetting the debt

Many people focus on reinvesting their cash and forget the loan payoff. That's the fastest way to mortgage boot. Run the full math.

### Going all-cash without a plan

A debt-free replacement can be a good choice. But if you paid off a loan, you'll need added cash or you'll have mortgage boot. Decide on purpose.

### Trying to borrow back cash you kept

New debt doesn't offset cash boot. If you need cash, plan for the tax with your CPA.

### Counting every closing cost as a selling cost

Loan fees, deposits, and repairs may not count. Ask your CPA which items reduce boot.

### Using equity instead of property value for leveraged DSTs

When you add up your replacement, use your share of each DST's property value and debt, not just the cash you invested.

### Buying slightly less than the target

Small shortfalls on both sides can add up to real boot, as Scenario B shows.

### Letting the QI send you leftover money by accident

Ask your QI what happens to any money left over and when it can be released.

### Ignoring the cap

If your gain is small, your taxable boot may be smaller than you fear. Ask your CPA about your adjusted basis before you take on debt you don't want.

### Taking on debt you're not comfortable with

Avoiding tax isn't worth sleepless nights. A little boot can be the better choice.

### Leaving your CPA out until April

Your CPA should see the plan before you identify property, not after you close.

## What my data shows

I keep [detailed records on the DST offerings I track](/data/dst-offerings). Here's what my offering records as of October 2026 show, across 76 DST offerings from 38 sponsors. These numbers describe the market I see. They don't predict how any offering will perform.

**Nearly half of DST offerings have no debt.** 36 of the 76 offerings, or 47%, are all-cash with no loan. That's useful if you didn't have debt on your sale, or if you plan to add cash. But on its own, an all-cash DST can't replace debt you paid off.

**About one in five offerings uses higher leverage.** 16 offerings, or 21%, have a loan-to-value above 50%. Among offerings with debt, the median LTV is about 49%. That range is what lets me blend debt-free and leveraged DSTs to hit a client's debt target, like the mix in the example above.

**Low minimums make precise mixes possible.** The median minimum investment is $100,000. Minimums range from $25,000 to $500,000. And 21 offerings, or 28%, start at $25,000. Smaller minimums let me place the last dollars of equity so less is left behind as cash boot.

**Exits matter for your future tax choices.** 44 offerings (58%) have an optional 721 exit, 13 (17%) have a mandatory one, 17 (22%) have none, and 2 are unclear. A [721 exchange into an UPREIT](/writing/what-is-a-721-exchange-upreit-dst) can limit your ability to do another 1031 exchange later, so I flag it every time.

**Projected income varies.** Among the 71 offerings that published a projected first-year distribution rate, the median is 4.7%, with a range of 4.0% to 9.0%. These are sponsor projections, not promises. Higher leverage can raise projected income and risk at the same time. My [DST income calculator](/tools/dst-income-calculator) can help you see what a projected rate means in dollars.

I also track more than 1,100 full-cycle 1031 DST investments for performance. My math training and [my background](/about) in real estate acquisitions shape how I read these numbers. Every offering I bring to clients goes through [my due diligence process](/writing/inside-my-due-diligence-process) first. You can see [the DST offerings I currently have available](/invest).

DST interests can qualify as replacement property, but they carry real risk. Distributions are not guaranteed. You can lose your entire investment. DSTs are illiquid, you have limited control, and most are available only to **accredited investors**, meaning people who meet the SEC's income or net worth tests.

## Frequently asked questions

### What is boot in a 1031 exchange?

Boot is cash, debt relief, or other non-like-kind value you receive in an exchange. It can be taxable, up to your realized gain. The rest of your gain can still be deferred.

### How do I avoid boot in a 1031 exchange?

A common rule of thumb is to buy replacement property worth at least your net sale price and reinvest all of your net equity. That usually means replacing the debt you paid off with new debt, added cash, or both. Your CPA should confirm the numbers.

### What is mortgage boot?

Mortgage boot is debt paid off on your sale that you don't replace. The tax code treats debt relief like money received. You can offset it with new debt or with your own added cash.

### Can new debt offset cash boot?

No. Under the Treasury regulation, cash you receive is not offset by debt you take on. Borrowing more on the new property doesn't cancel cash you kept.

### Can I add cash to avoid mortgage boot?

Yes. Cash you add to the purchase can offset debt you don't replace. For example, if your new loan is $100,000 smaller than your old one, adding $100,000 of your own cash can fill the gap.

### Do selling costs reduce boot?

Exchange expenses, like commissions, title fees, and transfer taxes, generally reduce boot on Form 8824. Some items on a settlement statement, like loan fees or deposits, may not count. Ask your CPA which costs apply.

### Is all boot taxable?

Boot is taxable only up to your realized gain. If your gain is smaller than your boot, you generally pay tax on the gain only. How it's taxed depends on your facts, so check with your CPA.

### Can a DST loan replace the debt I paid off?

Your share of a DST's loan is generally counted as debt on the replacement side. Blending debt-free and leveraged DSTs can help you hit a debt target. Debt adds risk, so weigh it carefully and confirm the treatment with your CPA.

### What is a partial 1031 exchange?

A partial exchange is one where you take some boot on purpose, like cash for another goal. That part of your gain is taxed now, and the rest stays deferred. You still report the exchange on Form 8824.

### Does the calculator apply the cap at realized gain?

No. The calculator doesn't know your adjusted basis, so it shows boot before the cap. Your CPA can apply the cap using your basis and depreciation history.

### What if I don't replace all my debt but my property is all cash?

Unless you add your own cash to make up the difference, the debt you don't replace is mortgage boot. Many investors solve this by mixing an all-cash DST with a leveraged one. Others decide to accept some boot instead of taking on debt.

## Sources

- [26 U.S. Code § 1031, Exchange of real property held for productive use or investment (Cornell Law School LII)](https://www.law.cornell.edu/uscode/text/26/1031)
- [26 CFR § 1.1031(d)-2, Treatment of assumption of liabilities (Cornell Law School LII)](https://www.law.cornell.edu/cfr/text/26/1.1031(d)-2)
- [26 CFR § 1.1031(k)-1, Treatment of deferred exchanges (Cornell Law School LII)](https://www.law.cornell.edu/cfr/text/26/1.1031(k)-1)
- [IRS, Instructions for Form 8824](https://www.irs.gov/instructions/i8824)
- [IRS, About Form 8824, Like-Kind Exchanges](https://www.irs.gov/forms-pubs/about-form-8824)
- [IRS Publication 544, Sales and Other Dispositions of Assets](https://www.irs.gov/publications/p544)
- [IRS Fact Sheet FS-2008-18, Like-Kind Exchanges Under IRC Code Section 1031](https://www.irs.gov/pub/irs-news/fs-08-18.pdf)
- [IRS Revenue Ruling 2004-86](https://www.irs.gov/pub/irs-drop/rr-04-86.pdf)

*This page is for education only. It is not tax, legal, or investment advice. Confirm your numbers and situation with your CPA, attorney, and qualified intermediary. Securities are offered through Aurora Securities, Inc., member FINRA/SIPC. Baker 1031 Investments, LLC is independent of Aurora Securities, Inc. DST investments are speculative, illiquid, and generally available only to accredited investors. Distributions are not guaranteed, and you can lose your entire investment.*

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Securities are offered through Aurora Securities, Inc., member FINRA/SIPC. Baker 1031 Investments, LLC is independent of Aurora Securities, Inc. and is not a registered broker-dealer or investment adviser. This content is general education, not investment, tax, or legal advice, and is not an offer to buy or sell securities. Offers are made only through the offering documents to eligible investors, generally accredited investors. DST interests are illiquid, distributions are not guaranteed, and you can lose your entire investment.

Contact: Jerry Baker, Baker 1031 Investments · hello@baker1031.com · (415) 965-0552 · https://baker1031.com/contact