What is a boot and how can I avoid it?

The term boot refers to non-like-kind property received in an exchange. This does not disqualify the exchange; however, it can introduce a taxable gain into the transaction and the Exchanger can have a “partially” deferred exchange rather than “fully”.

To avoid boot, you should remember three rules:

Your Replacement Property must be like-kind and should be equal or greater in value than the property you’re selling
Ensure that your net equity is “fully spent” when you purchase the Replacement Property
Ensure that your debt on the Replacement Property is of equal or greater value than the property you’re selling