Boot refers to the cash or fair market value of any additional property that an investor receives as part of the exchange that is not like-kind. This can occur when the property that is being acquired (replacement property) is of lesser value than the property that is being relinquished (relinquished property).

Boot can be in the form of:

Cash Boot: Any cash or reduction in mortgage liability that an investor receives during the exchange.
Mortgage Boot (or Debt Boot): This occurs if the mortgage on the replacement property is less than the mortgage on the relinquished property. The difference is treated as boot, and the investor may have to pay taxes on it.

Boot is not inherently bad, but it is subject to capital gains tax. To fully defer capital gains taxes in a 1031 exchange, an investor must reinvest all equity into like-kind property and take on equal or greater debt on the replacement property. If there is boot received, it doesn’t invalidate the exchange, but taxes are typically owed on the boot.