1031 Exchange Boot Calculator

How it is calculated

This models a US-style like-kind exchange; other countries have no equivalent rule or different ones. First the equity on each side: equity out = sale price − old mortgage and equity in = replacement price − new mortgage. Cash boot = max(0, equity out − equity in) is cash you take out, and cash added = max(0, equity in − equity out) is new cash you put in. Debt relief becomes mortgage boot = max(0, old mortgage − new mortgage − cash added): it counts only if new cash does not offset it. Total boot = cash boot + mortgage boot. The realized gain is sale price − adjusted basis, the taxable gain is min(realized gain, total boot) and the rest is deferred. Selling costs and closing costs are not entered, so the realized gain is simplified.

Common mistakes

• Looking only at the sale and purchase prices. A replacement property worth as much but bought with less debt still creates mortgage boot unless you add cash to cover the difference.
• Entering the original purchase price as the adjusted basis. The basis should be reduced by depreciation taken, otherwise the realized gain is understated.
• Forgetting that new cash paid in offsets debt relief. Adding cash can lower mortgage boot, but cash taken out is always boot and cannot be offset by paying down debt in this tool.
• Entering the current mortgage balance rather than the payoff at closing. Use the exact amount that is paid off from the sale proceeds.
• Treating the taxable gain as the tax bill. It is the amount that becomes taxable, and the actual tax depends on rates, recapture and your own situation.