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. 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.

BREAKING DOWN 'Boot'

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.

RELATED TERMS
  1. Section 1031

    Section 1031 is a tax law that defers recognition of tax when ...
  2. Golden Boot

    A golden boot is a financial package offered to encourage an ...
  3. Like-Kind Exchange

    A tax-deferred exchange that allows for the disposal of an asset ...
  4. Nonmonetary Assets

    Assets in which the right to receive a fixed or determinable ...
  5. Personal Property

    Personal property is a type of property which can include any ...
  6. Property Tax

    Property tax is an ad valorem tax assessed on real estate by ...
Related Articles
  1. Taxes

    Trade Properties To Keep The Taxman At Bay

    Like-kind exchanges can mean a much lower tax bill on real estate for savvy investors.
  2. Investing

    Use Real Estate To Put Off Tax Bills

    Find out how you can build wealth and reduce your taxes.
  3. Taxes

    How Does a Tax-Free Exchange Work?

    In regards to the sale of property, particularly in real estate, a 1031 exchange is increasingly being recognized for its tax benefits to investors of all levels.
  4. Taxes

    10 Things to Know About 1031 Exchanges

    Real estate swaps grow popular, but traps are many. Here's 10 things to know when considering 1031 swaps. Also: Beware new rules on vacation homes.
  5. Taxes

    Your Property Tax Assessment: What Does It Mean?

    Understanding your property taxes can protect you from financial shocks.
  6. Investing

    Now You Can Pick Up FedEx Deliveries at Walgreens

    Walgreens Boots Alliance (NASDAQ: WBA) has partnered with FedEx (NYSE: FDX) to make it easier for people to get their packages picked up and delivered. The two companies have signed a long-term ...
  7. Small Business

    Capitalization Rate

    Capitalization Rate is a financial term most commonly used in the real estate investment industry. It is often simply called the Cap Rate.
  8. Investing

    How interest rates affect property values

    Interest rates have profound impact on the value of income-producing real estate property. Find out how the rise and fall of interest rate affects property value.
  9. Investing

    Getting a Mortgage vs. Paying Cash for Investment Properties

    Is it better to pay for investment property with cash or to take the leveraged approach? We break down the pros and cons of each approach.
Hot Definitions
  1. Working Capital

    Working capital, also known as net working capital is a measure of a company's liquidity and operational efficiency.
  2. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  3. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  4. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  5. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  6. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
Trading Center