Boot – Fair market value of non-like-kind property received in an exchange. Most commonly, it is money received by the investor in an exchange that is subject to tax at the capital gains rate and possible withholding. This is a com- mon issue that arises when buying down in value.
Cash Boot – Money remaining in an exchange subject to tax and potential withholding.
Exchange Period – The period in which the investor must complete the exchange. This date is the earlier of the following: the 180th day of the exchange, as calculated from the day after the first relinquished property closes, or the due date of the investor’s tax return for the year of the transfer of the relinquished property. An extension may be filed with the IRS to extend the period beyond the tax-filing date to the 180th day.
Identification Period – The 45-day period in which the investor must submit a valid written identification of replacement property. The document must be sent to a qualified party before midnight of the 45th day and results in a failed exchange if not timely sent. This period begins the day after escrow closes on the first relinquished property.
Like-Kind Property – Property of the same nature or character (e.g. investment property for investment property).
Mortgage Boot – Tax liability for debt not replaced in an exchange.
Relinquished Property – Property sold in an exchange.
Replacement Property – Property acquired in an exchange.