What is Boot - T- Bar

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             Boot is any "NON LIKE KIND" property received by the Exchangor in the exchange.

    CASH BOOT

Boot in the form of Cash consists of any funds received by the Exchangor, either constructively or actually.

If you as an Exchangor do not spend all of the proceeds from the sale of the relinquished property, you will be in receipt of the balance, that was not spent, and you will pay taxes on that amount.

Remember:
If you the Exchangor want to take cash out of the First Phase of the exchange, you must notify the Intermediary immediately.
The cash must then come directly out of the closing of the First Phase and not from the Intermediary.

Once the equity from the exchange is in the Intermediary's, Qualified Escrow Account,
the Exchangor cannot access the funds until the end of the exchange. 

Constructive receipt of funds may occur in a case where the Exchangor carries back a note from the Buyer of the relinquished property, and then in return sells that note to an investor at a discount.

Although you as a Real Estate Exchangor may never actually receive cash for the discounted amount, you will however, have constructively received the discounted amount, and you will pay tax on the amount.

    MORTGAGE BOOT: ( OR DEBT RELIEF )

Mortgage Boot occurs when as the Exchangor you do not acquire new debt that is equal to or greater than the debt that was paid off, therefore, you were "RELIEVED OF DEBT". 

Which is perceived as taking a monetary benefit out of the exchange.
Unless you offset that amount by adding equivalent cash to the transaction, that debt relief portion will be taxable. 

It is absolutely acceptable to take cash out of the exchange and pay taxes on that amount only.
The only thing you have in the ownership of real estate is the equity in the property. 
The property may have a value of $850,000, but if you have encumbrances of $725,000 your equity is $125,000. 

There are many things you can do with the equity, buy, sell, exchange, use as a down payment, create a note and sell at a discount, etc.

The table below is what exchangors call a T-Bar which shows you how to balance equities in an exchange.  The T-Bar is an extremely valuable tool in the exchange business.  

                                   You                    We     

OV

$150,000

$200,000

Loan

$50,000

$125,000

Equity

$50,000

$75,000

     Boot

0

$25,000

Balance

$100,000

$100,000

In the example of this T-Bar, the Boot is $25,000

This $25,000 can be in the form of cash, a note, car, boat, art work, jewelry, exchange of services, what ever is of value can be used as long as each party agrees.

T - Bar

                   This T-Bar shows you how to balance the equities in an exchange

OV =           Owners value (This is the owners value) Not an appraisal
Loan =       Loans and encumbrances on the property
Equity =     The difference between the loans from the owners value
Boot =       The difference between the equity of the parties involved
Balance =  The equities have to balance

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