Updated August 17, 2026
Mortgage boot is the taxable amount created when the debt on a 1031 replacement property is less than the debt discharged on the relinquished property.
It is the half of the reinvestment test sellers forget. Reinvesting every dollar of equity is not sufficient — the replacement must also carry equal or greater debt, or the shortfall must be covered with additional cash contributed to the purchase.
Common in Los Angeles because owners exiting management-heavy rent-stabilized buildings frequently want less leverage in the next phase. Selling a $6M building with a $3M loan and buying a $6M replacement with a $2M loan leaves $1M of mortgage boot, despite full reinvestment of the equity.
Thinking about selling? Get a no-obligation evaluation on your building.
Request Free Evaluation →