Bet your Boots! Receipt of Boot Does Not Poison 1031 Exchange

Boot is an old English term meaning "something given in addition to.” In tax lingo, it means cash or non-cash consideration, including other property that is not "like-kind," like promissory notes, debt relief (mortgage boot), or other property. When structuring a sale or exchange of property (real or personal) that is eligible for tax-free treatment under I.R.C. § 1031, gain realized on the exchange is recognized (reported) to the extent of the boot received. Although the receipt of boot does not invalidate nonrecognition treatment, you may pay taxes at the federal and state level on boot proceeds. Learn more by accessing our 1031 Like-Kind Exchange Resource Kit.

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Related Content

• Basic Tax Considerations in Divestiture Transactions
  See how the concept of boot is key in tax-free sales of an organization. For example, to structure a sale as a tax-free reorganization under I.R.C. § 368(a), the reorganization must satisfy the requirements of (1) continuity of business enterprise, (2) business purpose, and (3) continuity of interest. The continuity of interest requirement requires that a certain number of target shareholders continue to own an equity interest in the buyer following the transaction, generally interpreted to mean that no more than 60% of the purchase consideration can be in cash or property (boot) other than buyer stock. 

• M&A Tax Considerations for C Corporations
  Learn more on how the receipt of boot can undermine a B reorganization. In a B reorganization, the purchasing or acquiring corporation uses only voting stock to acquire the controlling interest of another corporation. So, success of a B reorganization prohibits the use of boot ("no boot in B").

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