Certain items or assets, generally those of relatively low value, added to a transaction to equalize the exchange are commonly referred to as “boot.” In real estate transactions, this might include cash, personal property, or other assets used to balance the equities when properties of unequal value are exchanged. For example, if two parties agree to exchange properties, and one property is worth more than the other, the party receiving the more valuable property may provide cash to the other party to make the exchange equal. This additional cash would be considered “boot”.
The inclusion of boot in a like-kind exchange has significant tax implications. While a like-kind exchange typically allows for the deferral of capital gains taxes, the receipt of “boot” triggers a taxable event. The recipient of the “boot” must recognize gain to the extent of the value of the “boot” received. Understanding the concept and potential tax consequences is crucial for parties engaging in property exchanges, as it allows for informed decision-making and effective tax planning. Historically, these exchanges were designed to facilitate property investment without immediate tax liabilities, encouraging reinvestment and economic activity.
