Definition:
In finance, the term “boot” refers to cash or other property that is received in addition to stock in a like-kind exchange. A like-kind exchange is a tax-deferred exchange of property for similar property. The boot received in a like-kind exchange can trigger tax consequences.
Key points about boot:
- Like-kind exchange: Boot is often involved in like-kind exchanges, where property of similar nature is exchanged.
- Tax implications: The receipt of boot in a like-kind exchange can trigger tax consequences, as the difference between the fair market value of the property given up and the fair market value of the property received plus the boot is considered a taxable gain.
- Non-recognition: If the boot received is less than or equal to the realized loss on the property given up, the gain on the exchange can be deferred.
- Recognition: If the boot received exceeds the realized loss, the gain on the exchange is recognized as taxable income.
Why is boot important?
- Tax planning: Understanding the concept of boot is important for tax planning, as it can affect the tax consequences of a like-kind exchange.
- Investment decisions: Boot can be a factor in considering the attractiveness of a like-kind exchange.
In essence, boot is cash or other property received in a like-kind exchange, and it can trigger tax consequences if it exceeds the realized loss on the property given up.
