---
title: At What Rate is Boot Taxed in a 1031 Exchange?
description: The boot is any amount of value that is not replaced by the acquisition of equivalent properties in a 1031 exchange.
image: https://www.realized1031.com/hubfs/what%20is%20a%20clawback%20in%20a%201031%20exchange%3F-1191656235.jpg
---

[![Realized 1031 Exchange Marketplace](https://www.realized1031.com/hs-fs/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black.png?width=240&height=80&name=Realized-Logo-Black.png "Realized 1031 Logo") ](https://www.realized1031.com/)

- [Wealth Management Gap](https://www.realized1031.com/the-wealth-management-gap)
- [Our Process](https://www.realized1031.com/how-realized-works)
- [Financial Advisors](https://www.realized1031.com/advisor)
- [Resources](https://www.realized1031.com/resources)

- [The Company](https://www.realized1031.com/about-us)
- [Articles](https://www.realized1031.com/blog)

[Register](https://www.realized1031.com/marketplace)

[Log In](https://www.realized1031.com/login)

- Better Business Bureau Rating: **A+**
- [FINRA BrokerCheck](https://brokercheck.finra.org/firm/summary/22333)
- [Call](tel:1-877-797-1031) **(877) 797-1031**

# At What Rate is Boot Taxed in a 1031 Exchange?

Posted Jan 19, 2023

![what is a clawback in a 1031 exchange?-1191656235](https://www.realized1031.com/hs-fs/hubfs/what%20is%20a%20clawback%20in%20a%201031%20exchange%3F-1191656235.jpg?width=750&height=393&name=what%20is%20a%20clawback%20in%20a%201031%20exchange%3F-1191656235.jpg)

When an investor earns a profit through selling an asset, the IRS taxes the income as a capital gain. If the owner held the investment for less than a year before selling, the growth is classified as[ short-term](https://www.realized1031.com/blog/what-is-a-short-term-capital-gain-how-much-is-it-and-how-is-it-taxed), and the tax rate is the same as that taxpayer’s ordinary income. Depending on the individual’s income level, that tax rate may be as high as 37 percent.

On the other hand, if the taxpayer owned the asset for more than a year and then sold it, they would owe taxes at the long-term capital gains rate, which tops out at 20 percent. In either case, the amount subject to tax is determined by calculating the difference between the adjusted basis (the original purchase price plus any out-of-pocket expenses and improvements) and the sales price.

### Deferring taxes with a 1031 exchange.

If the investor is reinvesting the proceeds and prefers to defer paying the capital gains taxes, they can execute the transactions using a[ 1031 exchange](https://www.realized1031.com/blog/what-financial-advisors-should-know-about-1031-exchanges). The 1031 exchange is a process documented in IRC section 1031 regarding "like-kind exchanges." Since the IRS allows taxpayers to defer payment of capital gains using this method, the process is governed by rules and tight timelines. Among the critical provisions are these requirements:

- The investor must identify potential replacement properties within 45 days of the initial sale and complete the transaction within 180 days.
- The investor must reinvest the entire proceeds by buying new properties with the same or higher value than the relinquished asset and with equivalent or greater debt.
- A[ Qualified Intermediary](https://www.realized1031.com/qualified-intermediary) must hold the proceeds, formalize the identification of replacement assets, and maintain all relevant documentation for the transaction. In addition, the investor mustn't have access to the proceeds during the exchange period.

### What is boot in a 1031 exchange?

[The boot](https://www.realized1031.com/blog/is-boot-in-a-1031-exchange-taxed-as-a-capital-gain) is any amount of value that is not replaced by the acquisition of equivalent properties. For example, suppose that you want to divest a residential rental valued at $400,000, on which you have made a profit of $50,000. If you want to defer the payment of capital gains taxes on the appreciation, you must reinvest not just what you gained by holding the property but the entire proceeds of the sale.

If you sell the investment property for $400,000, you need to buy a new property or properties for at least $400,000. If you reinvest a smaller amount, the remainder is considered boot and is taxable. If the sale takes place less than a year after your initial property purchase, you will pay taxes on the boot at your ordinary income rate. The boot is taxed at the lower capital gains rate if you sell the property more than a year after buying it. Still, the goal for an investor using a 1031 exchange for the transaction is most likely to defer paying taxes on the entire amount. To do that, they must buy property equal to or greater than the disposition proceeds. 

This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor.

Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.

Costs associated with a 1031 transaction may impact investor's returns and may outweigh the tax benefits. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities.

Download The Guide To 1031 Exchange

[![The 1031 Investor's Guidebook](https://www.realized1031.com/hs-fs/hubfs/Images/UI/graphics/composites/1031-Exchange-eBook-250.png?width=250&height=250&name=1031-Exchange-eBook-250.png "Tackle the art and science of ...") ](https://www.realized1031.com/blog/at-what-rate-is-boot-taxed-in-a-1031-exchange#blogform)

Download eBook

---

 

---

### The 1031 Investor's Guidebook

![Download The Guide To 1031 Exchange](https://www.realized1031.com/hs-fs/hubfs/Images/UI/graphics/composites/1031-Exchange-eBook-550.jpg?width=550&height=650&name=1031-Exchange-eBook-550.jpg)

Tackle the art and science of completing your 1031 exchange.

By providing your email and phone number, you are opting to receive communications from Realized. If you receive a text message and choose to stop receiving further messages, reply STOP to immediately unsubscribe. Msg & Data rates may apply. To manage receiving emails from Realized visit the Manage Preferences link in any email received.

Search

### [Why Realized](https://www.realized1031.com/why-realized)

- [Wealth Management](https://www.realized1031.com/the-wealth-management-gap)
- [Why Realized](https://www.realized1031.com/why-realized)
- [Our Process](https://www.realized1031.com/how-realized-works)
- [Scenarios](https://www.realized1031.com/scenarios)
- [Private Client Program](https://www.realized1031.com/private-client)
- [Realized Exchange Services](https://www.realized1031.com/realized-exchange-services)

### [The Company](https://www.realized1031.com/about-us)

- [The Team](https://www.realized1031.com/about-us)
- [FAQ](https://www.realized1031.com/frequently-asked-questions)
- [Testimonials](https://www.realized1031.com/testimonials)
- [Press](https://www.realized1031.com/press)
- [Careers](https://www.realized1031.com/careers)

### [Partners](https://www.realized1031.com/partners)

- [Financial Advisors](https://www.realized1031.com/advisor)
- [Broker Dealers](https://www.realized1031.com/partners/broker-dealers)
- [Real Estate Agents](https://www.realized1031.com/partners/real-estate-agents)
- [Certified Public Accountants](https://www.realized1031.com/partners/certified-public-accountants)

### [Resources](https://www.realized1031.com/resources)

- #### Learn
  
    - [Articles](https://www.realized1031.com/blog)
    - [Glossary of Terms](https://www.realized1031.com/glossary)
    - [Capital Gains Tax Rates](https://www.realized1031.com/capital-gains-tax-rate)
- #### Watch
  
    - [Video Library](https://www.realized1031.com/videos)
    - [Webinar Archive](https://www.realized1031.com/webinars)
- #### Read
  
    - [Delaware Statutory Trust](https://www.realized1031.com/delaware-statutory-trust)
    - [Tenants-In-Common](https://www.realized1031.com/tenants-in-common-tic)
    - [1031 Exchange](https://www.realized1031.com/1031-exchange)
    - [Qualified Intermediary](https://www.realized1031.com/qualified-intermediary)
    - [Qualified Opportunity Zones](https://www.realized1031.com/opportunity-zones)

#### Realized

- 500 W 13th Street  
  Austin, TX 78701
- (877) 797-1031

##### [Contact Us](https://www.realized1031.com/contact-us)

- [![Realized on Facebook](https://www.realized1031.com/hs-fs/hubfs/Images/UI/Social/Icons/Mix/social-facebook-whiterev.png?width=60&height=60&name=social-facebook-whiterev.png)](https://www.facebook.com/Realized/)
- [![Realized on LinkedIn](https://www.realized1031.com/hs-fs/hubfs/Images/UI/Social/Icons/Mix/social-linkedin-whiterev.png?width=60&height=60&name=social-linkedin-whiterev.png)](https://www.linkedin.com/company/realized/)
- [![Realized on YouTube](https://www.realized1031.com/hs-fs/hubfs/Images/UI/Social/Icons/Mix/social-youtube-whiterev.png?width=60&height=60&name=social-youtube-whiterev.png)](https://www.youtube.com/c/Realized1031?sub_confirmation=1)

- [![Realized Holdings, Inc. BBB Business Review](https://www.realized1031.com/hs-fs/hubfs/Images/professional-assoc/bbb/RZH2-bbb-seal.png?width=40&height=65&name=RZH2-bbb-seal.png)](http://www.bbb.org/central-texas/business-reviews/real-estate-investors/realized-holdings-llc-in-austin-tx-1000112948/#bbbonlineclick)
- [![FEA Logo](https://www.realized1031.com/hs-fs/hubfs/Images/professional-assoc/fea/RZH2-fea-logo.png?width=82&height=65&name=RZH2-fea-logo.png "FEA Logo")](https://www.1031.org)

SECURITIES DISCLOSURE

Realized1031.com is a website operated by Realized Technologies, LLC, a wholly owned subsidiary of Realized Holdings, Inc. (“Realized Holdings”). Securities and/or Investment Advisory Services may be offered through Registered Representatives or Investment Advisor Representatives of Realized Financial, Inc. ("Realized"), a broker/dealer, member [FINRA](https://www.finra.org)/[SIPC](https://www.sipc.org/), and registered investment adviser. Realized is a subsidiary of Realized Holdings, Inc. ("Realized Holdings"). Check the background of this firm on [FINRA's BrokerCheck](https://brokercheck.finra.org/firm/summary/22333).

Hypothetical example(s) are for illustrative purposes only and are not intended to represent the past or future performance of any specific investment.

Investing in alternative assets involves higher risks than traditional investments and is suitable only for sophisticated investors. Alternative investments are often sold by prospectus that discloses all risks, fees, and expenses. They are not tax efficient and an investor should consult with his/her tax advisor prior to investing. Alternative investments have higher fees than traditional investments and they may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss or gain and should not be deemed a complete investment program. The value of the investment may fall as well as rise and investors may get back less than they invested.

This site is published for residents of the United States who are accredited investors only. Registered Representatives and Investment Advisor Representatives may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed until appropriate registration is obtained or exemption from registration is determined. Not all of services referenced on this site are available in every state and through every representative listed. For additional information, please contact the Realized Compliance department at 512-472-7171 or info@realized1031.com.

- [Terms & Conditions](https://www.realized1031.com/terms-and-conditions)
- [Privacy Policy](https://www.realized1031.com/privacy-policy)
- [Form CRS](https://www.realized1031.com/hubfs/common-files/disclosures/FormCRS.pdf)
- [ADV 2A](https://www.realized1031.com/hubfs/common-files/disclosures/ADV2A.pdf)
- [Reg BI Disclosures](https://www.realized1031.com/hubfs/common-files/disclosures/RegBI.pdf)
-  

© 2026 Realized Holdings, Inc.

```json
{
  "@context" : "http://schema.org/",
  "@type" : "BlogPosting",
  "articleBody" : "When an investor earns a profit through selling an asset, the IRS taxes the income as a capital gain. If the owner held the investment for less than a year before selling, the growth is classified as short-term, and the tax rate is the same as that taxpayer’s ordinary income. Depending on the individual’s income level, that tax rate may be as high as 37 percent. On the other hand, if the taxpayer owned the asset for more than a year and then sold it, they would owe taxes at the long-term capital gains rate, which tops out at 20 percent. In either case, the amount subject to tax is determined by calculating the difference between the adjusted basis (the original purchase price plus any out-of-pocket expenses and improvements) and the sales price. Deferring taxes with a 1031 exchange. If the investor is reinvesting the proceeds and prefers to defer paying the capital gains taxes, they can execute the transactions using a 1031 exchange. The 1031 exchange is a process documented in IRC section 1031 regarding \"like-kind exchanges.\" Since the IRS allows taxpayers to defer payment of capital gains using this method, the process is governed by rules and tight timelines. Among the critical provisions are these requirements: The investor must identify potential replacement properties within 45 days of the initial sale and complete the transaction within 180 days. The investor must reinvest the entire proceeds by buying new properties with the same or higher value than the relinquished asset and with equivalent or greater debt. A Qualified Intermediary must hold the proceeds, formalize the identification of replacement assets, and maintain all relevant documentation for the transaction. In addition, the investor mustn't have access to the proceeds during the exchange period. What is boot in a 1031 exchange? The boot is any amount of value that is not replaced by the acquisition of equivalent properties. For example, suppose that you want to divest a residential rental valued at $400,000, on which you have made a profit of $50,000. If you want to defer the payment of capital gains taxes on the appreciation, you must reinvest not just what you gained by holding the property but the entire proceeds of the sale. If you sell the investment property for $400,000, you need to buy a new property or properties for at least $400,000. If you reinvest a smaller amount, the remainder is considered boot and is taxable. If the sale takes place less than a year after your initial property purchase, you will pay taxes on the boot at your ordinary income rate. The boot is taxed at the lower capital gains rate if you sell the property more than a year after buying it. Still, the goal for an investor using a 1031 exchange for the transaction is most likely to defer paying taxes on the entire amount. To do that, they must buy property equal to or greater than the disposition proceeds.",
  "articleSection" : [ "1031 Exchange" ],
  "author" : {
    "@type" : "Person",
    "email" : "marketing@realized1031.com",
    "image" : "",
    "name" : "The Realized Team",
    "url" : "https://www.realized1031.com/blog/author/the-realized-team"
  },
  "dateModified" : "2023-01-20T01:00:00+0000",
  "datePublished" : "2023-01-20T01:00:00+0000",
  "description" : "The boot is any amount of value that is not replaced by the acquisition of equivalent properties in a 1031 exchange.",
  "headline" : "At What Rate is Boot Taxed in a 1031 Exchange?",
  "image" : {
    "@type" : "ImageObject",
    "height" : 393,
    "url" : "https://733513.fs1.hubspotusercontent-na1.net/hubfs/733513/what%20is%20a%20clawback%20in%20a%201031%20exchange%3F-1191656235.jpg",
    "width" : 750
  },
  "mainEntityOfPage" : "https://www.realized1031.com/blog/at-what-rate-is-boot-taxed-in-a-1031-exchange",
  "name" : "At What Rate is Boot Taxed in a 1031 Exchange?",
  "publisher" : {
    "@type" : "Organization",
    "address" : {
      "@type" : "PostalAddress",
      "addressCountry" : "USA",
      "addressLocality" : "Austin",
      "addressRegion" : "TX",
      "postalCode" : "78701",
      "streetAddress" : "500 W 13th Street "
    },
    "logo" : {
      "@type" : "ImageObject",
      "height" : 60,
      "url" : "http://www.realized1031.com/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black-No-Margin-296x60-AMP.png",
      "width" : 296
    },
    "name" : "Realized"
  },
  "thumbnailUrl" : "https://733513.fs1.hubspotusercontent-na1.net/hubfs/733513/what%20is%20a%20clawback%20in%20a%201031%20exchange%3F-1191656235.jpg"
}
```