Loan-to-Value (LTV) Calculator

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The above calculation is an estimate. It's important to consult with a licensed tax professional regarding your personal replacement property debt requirements.

Mortgage boot or debt reduction boot may occur when the replacement property's owed debt is less than the debt owed on your relinquished property. Reducing your debt liability is considered income because it is cash that you once owed that will now remain in your pocket at the time the debt matures. Income, as you know, is taxable.

For instance, if your replacement property's mortgage is $100,000 and your relinquished property's mortgage is $120,000, then you will have $20,000 in debt reduction boot. This occurs even if you use all of your sales proceeds to buy the replacement property.

Though boot does not cancel your 1031 exchange, it may result in a large tax liability. Since you are likely conducting a 1031 exchange to defer payment of your capital gains tax, boot will counteract this benefit, as you will need to pay capital gains tax on the boot.

Learn more about boot and how to avoid it