Boot: What it is, How it Works in Accounting

Will Kenton is an expert on the economy and investing laws and regulations. He previously held senior editorial roles at Investopedia and Kapitall Wire and holds a MA in Economics from The New School for Social Research and Doctor of Philosophy in English literature from NYU.

David Kindness is a Certified Public Accountant (CPA) and an expert in the fields of financial accounting, corporate and individual tax planning and preparation, and investing and retirement planning. David has helped thousands of clients improve their accounting and financial systems, create budgets, and minimize their taxes.

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What Is Boot?

Boot is cash or other property added to an exchange to make the value of the traded goods equal. Cash boot is allowed to be part of a nonmonetary exchange under U.S. Generally Accepted Accounting Principles (GAAP). However, for the exchange to qualify as nonmonetary, the value of the boot should be 25% or less of the total fair value of the exchange.

Key Takeaways

• Boot is cash or other property added to an exchange to make the value of the traded goods equal.
• Because it is difficult to find two like-kind properties of identical value to exchange, one party will commonly contribute cash and/or physical property to make the value of the two sides of the deal equal.
• For example, if you trade in an old car for a new model and add cash to the deal, the cash you pay is the boot.
• In order for cash boot to be qualified as nonmonetary, the value of the boot should be 25% or less of the total fair value of the exchange.
• Boots can help the recipient of the exchange pay less in capital gains tax.

How Boot Works

When you trade in an old car for a new model and add cash to the deal, the cash you pay is the boot. In real estate, boot might also come into play in a 1031 exchange. Because it is difficult to find two like-kind properties of identical value to exchange, one party will commonly contribute cash and/or physical property to make the value of the two sides of the deal equal. The base amount of the exchange remains tax-deferred, but the boot is considered a taxable gain.

Even with the boot, however, the recipient will pay less in capital gains taxes for the current tax year than if he had sold the appreciated property and then purchased a different property. Parties will often engage in like-kind transactions in order to avoid or minimize the tax consequences of selling an appreciated asset.

1. Financial Accounting Standards Board. "Interpretations of APB Opinion No. 29," Pages 13-14. Accessed May 30, 2021.
2. Internal Revenue Service. "Like-Kind Exchanges - Real Estate Tax Tips." Accessed May 30, 2021.
3. Internal Revenue Service. "About Form 8824, Like-Kind Exchanges." Accessed May 30, 2021.

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