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Let’s first explain what boot is and why you don’t want it.

Ideally a 1031 exchange is a tax-deferred financial investment strategy that involves reinvesting into a like-kind property to defer capital gains. But if the replacement property isn’t the same value of your sold property, you can incur boot, that is, the difference between the two. And boot can introduce a taxable event. For example, if you sell a property for $700,000 but only reinvest $650,000 the $50,000 difference is the boot…and it’s taxable. Simply, the boot is the non-like-kind portion received during a 1031 exchange. It takes your investment from being a fully tax deferred exchange to a partially tax deferred exchange.

Boot can take on many forms including:

  • Cash proceeds remaining at the closing of the replacement property
  • Cash proceeds remaining after the entire 1031 exchange is completed
  • Re-investing in non-qualified property, such as stocks, bonds, notes or partnership interests
  • Proceeds taken from the exchange in the form of a note
  • Debt relief on the exchanged property that is not replaced fully on the replacement property
  • Property which is not “like-kind” for example real property exchanged for personal property
  • Promissory notes from the buyer
  • Property that is intended for personal use and not for use as and investment or business use


To avoid having boot and having to pay capital gains, the exchanger should follow these tips paying special attention to the first two:

  • Buy an equal or greater-in-value replacement property including the debt.
  • Spend all the net equity by investing it into the replacement property.
  • Don’t factor in non-like-kind property in the exchange transaction including equipment, inventory, etc.
  • Don’t over finance the replacement property.
  • Replace the debt by obtaining debt equal to or greater than on the replacement property. If you want to reduce the new debt, it can be offset with additional cash.


Diversified Investment Strategies represents a team of experienced and trusted professionals specializing in real estate investment and services – including buying, selling, leasing, retirement planning and wealth growth and management through strategic, informed investment choices and a meticulous real estate investment analysis. As knowledgeable replacement property professionals, they help clients build a customized strategy that identifies suitable investments pursuing successful completion of a 1031 Tax-Deferred Exchange. Visit them at or call 866-261-0104.

There are material risks associated with investing in DST properties and real estate securities including liquidity, tenant vacancies, general market conditions and competition, lack of operating history, interest rate risks, the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multi-family properties, financing risks, potential adverse tax consequences, general economic risks, development risks, long hold periods, and potential loss of the entire investment principal. Past performance is not a guarantee of future results.  Potential cash flow, returns and appreciation are not guaranteed. IRC Section 1031 is a complex tax concept; consult your legal or tax professional regarding the specifics of your particular situation. This is not a solicitation or an offer to sell any securities. DST 1031 properties are only available to accredited investors (typically have a $1 million net worth excluding primary residence or $200,000 income individually/$300,000 jointly of the last three years) and accredited entities only. If you are unsure if you are an accredited investor and/or an accredited entity please verify with your CPA and Attorney.

Diversified 1031 does not offer legal or tax advice. Please consult the appropriate professional regarding your individual circumstance.

Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Diversified 1031 is independent of CIS.