1031 Exchange Boot Calculator

Enter your realized gain and mortgage figures to calculate taxable "boot" and how much capital gain you can defer in a 1031 exchange.

1031 Exchange Boot Calculator

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Realized capital gain ($)

Mortgage on property sold ($)

Mortgage on replacement property ($)

Additional cash added at closing ($)

Cash received / not reinvested ($)

Mortgage boot	$200,000.00
Cash boot	$0.00
Recognized gain (taxable now)	$200,000.00
Deferred gain (tax-free for now)	$340,000.00

Simplified planning model. Actual 1031 exchanges involve strict 45-day identification and 180-day closing deadlines, qualified intermediary requirements, and depreciation recapture rules - consult a qualified intermediary and tax advisor before proceeding.

The formula

Mortgage boot = MAX(0, Old mortgage - New mortgage - Additional cash added) Cash boot = MAX(0, Cash received / not reinvested) Total boot = Mortgage boot + Cash boot Recognized gain (taxable now) = MIN(Total boot, Realized gain) Deferred gain = Realized gain - Recognized gain

Example

$540,000 realized gain, old mortgage $500,000 paid off, new mortgage only $300,000, no cash added: $200,000 in mortgage boot triggers a $200,000 recognized (taxable) gain right now, while the remaining $340,000 defers into the replacement property.

Step-by-step guide

Calculate your realized gain from the sale (sale price minus adjusted basis and selling costs) - this is the total gain, not what you'll necessarily be taxed on.
Compare old and new mortgage amounts - taking on LESS debt than you had before creates mortgage boot, treated by the IRS exactly like receiving cash.
Add any outside cash brought to closing - this can offset mortgage boot dollar-for-dollar, giving you a lever to avoid unexpected taxation.

Why "trading down" in debt is the most common way investors accidentally trigger tax

Many investors focus entirely on matching or exceeding the SALE PRICE of their relinquished property, assuming that alone guarantees full tax deferral - but the debt side of the equation is just as critical and far more commonly overlooked. If you pay off a $500,000 mortgage but only take on $300,000 of new debt, the IRS treats that $200,000 reduction in liabilities as if you'd pocketed $200,000 in cash, even though no cash physically changed hands. This "mortgage boot" catches investors off guard specifically because it feels counterintuitive - reducing debt seems like a conservative, positive financial move, but in the specific context of a 1031 exchange, it can trigger an immediate, unwanted tax bill.

Common mistakes

Assuming a larger new mortgage can offset cash boot - the netting rules are asymmetric: extra cash CAN offset mortgage boot, but taking on MORE debt cannot offset cash boot you've already taken out.

Missing the 45-day identification or 180-day closing deadlines - these are strict IRS timelines with essentially no exceptions, and missing either one disqualifies the entire exchange.

Frequently asked questions

Can I ever be taxed on more than my total realized gain?

No - recognized (taxable) gain is always capped at the lesser of your total boot or your total realized gain. Even if your boot exceeds your gain, you can never be taxed on more than the gain you actually realized.

What is a Qualified Intermediary and why is one required?

A Qualified Intermediary (QI) is a required third party that holds the sale proceeds between closings, since you can never have actual or constructive receipt of the funds yourself - touching the money directly disqualifies the exchange entirely.

Does depreciation recapture still apply in a fully deferred exchange?

Depreciation recapture is deferred along with the capital gain in a fully tax-deferred exchange, but it carries forward into the replacement property's basis and will eventually be recognized (at up to 25%) when the property is sold without another exchange.

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