Unlike Property (Boot) and Cash - Tax-Deferred Exchange
The concept of "boot" - unlike property or cash given or received in a tax-deferred exchange - can be complex. Helpful information for taxpayers can be found below.
Note: It is rare in exchanges (especially real property exchanges) to have boot other than cash. Thus, boot generally represents cash given or received.
A. As noted, “boot” is unlike property or cash given or received in an exchange.
B. When unlike property other than cash is given along with the exchanged like-kind property, gain or loss must be recognized on the “boot.”
“ Example – Unlike Property Given in an Exchange - Tacksmie Knott exchanged investment real estate with a fair market value of $119,000 and an adjusted basis of $115,000 and STOCK (adjusted basis of $4,000, FMV of $1,000) for rental real estate worth $$200,000. Knott recognized no gain on the exchange of the real property but recognized a $3,000 loss on the stock. ”
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On the other hand, if unlike property or cash is received in an exchange, gain is recognized to the extent of the boot received, while loss is not recognized.
“ Example – Cash Boot Received in TFE Transaction - Rental real estate with an adjusted basis of $165,000 is exchanged for like-kind property valued at $175,000 AND cash of $25,000. The realized gain on the transaction is $35,000 ($175,000 + $25,000 less $165,000). Taxable gain is limited to the amount of cash boot, $25,000. ”
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When cash is both given and received, the amounts offset one another and only the net is boot received or given.