Boot

What Is Boot?

Boot is cash or other property added to an exchange to make the value of the traded goods equal. Cash boot is allowed to be part of a nonmonetary exchange under U.S. Generally Accepted Accounting Principles (GAAP). However, for the exchange to qualify as nonmonetary, the value of the boot should be 25% or less of the total fair value of the exchange.

Key Takeaways

  • Boot is cash or other property added to an exchange to make the value of the traded goods equal.
  • Because it is difficult to find two like-kind properties of identical value to exchange, one party will commonly contribute cash and/or physical property to make the value of the two sides of the deal equal.
  • For example, if you trade in an old car for a new model and add cash to the deal, the cash you pay is the boot.
  • In order for cash boot to be qualified as nonmonetary, the value of the boot should be 25% or less of the total fair value of the exchange.
  • Boots can help the recipient of the exchange pay less in capital gains tax.

How Boot Works

When you trade in an old car for a new model and add cash to the deal, the cash you pay is the boot. In real estate, boot might also come into play in a 1031 exchange. Because it is difficult to find two like-kind properties of identical value to exchange, one party will commonly contribute cash and/or physical property to make the value of the two sides of the deal equal. The base amount of the exchange remains tax-deferred, but the boot is considered a taxable gain.

Even with the boot, however, the recipient will pay less in capital gains taxes for the current tax year than if he had sold the appreciated property and then purchased a different property. Parties will often engage in like-kind transactions in order to avoid or minimize the tax consequences of selling an appreciated asset.

Article Sources
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  1. Financial Accounting Standards Board. "Interpretations of APB Opinion No. 29," Pages 13-14. Accessed May 30, 2021.

  2. Internal Revenue Service. "Like-Kind Exchanges - Real Estate Tax Tips." Accessed May 30, 2021.

  3. Internal Revenue Service. "About Form 8824, Like-Kind Exchanges." Accessed May 30, 2021.

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