Partial 1031 exchange: boot, deferred gain, and the clock

By RentalAnalytics Editorial Team · Published October 13, 2026

The IRS states the rule on its like-kind exchange page, last reviewed May 1, 2026: "If, as part of the exchange, you also receive other (not like-kind) property or money, you must recognize a gain to the extent of the other property and money received." You cannot recognize a loss. The worksheet for that split is Form 8824, and the timing rules are in the Instructions for Form 8824.

Key takeaways

• A partial exchange can still be a 1031. Recognized gain is limited to the money and non-like-kind property you receive.
• Form 8824 line 15 is that boot. Line 20 is the smaller of line 15 and realized gain, and not below zero.
• Deferred gain in this walkthrough is line 19 minus line 20. It matches line 24 when line 23 equals line 20. Line 21 recapture is not computed here.
• The replacement value test compares the replacement price with the sale price. Exchange expenses can reduce line 15, so a price gap is not automatically the tax.
• Identification is due 45 days after you transfer the property you give up. Receipt is due on the earlier of day 180 and the return due date, including extensions.

What is a partial 1031 exchange?

A partial 1031 exchange is a like-kind exchange that also pays you boot. Boot is money, other property that is not like-kind real property, or net relief from a mortgage.

Since January 1, 2018, section 1031 applies only to real property, not to personal or intangible property. The IRS page states that change from the Tax Cuts and Jobs Act. Furniture sold with a rental is not like-kind real estate. Real property inside the United States is not like-kind to real property outside the United States. Property held primarily for sale does not qualify.

The costs that sit beside the tax, including the qualified intermediary fee and overlap carrying costs, are covered in Partial 1031 exchanges and real costs. This page is the gain math.

How do you figure boot, recognized gain, and deferred gain?

Use the same order as Form 8824. Realized gain is the economic gain. Line 15 is the boot. Recognized gain is the smaller of those two figures. Deferred gain is what remains.

1. Start with realized gain: sale price minus exchange expenses minus adjusted basis of the property you give up.
2. Build Form 8824 line 15: cash you would receive before expenses, plus other non-like-kind property, plus net liability relief, then subtract exchange expenses, not below zero.
3. Recognized gain is the smaller of line 15 and realized gain, and not below zero. That is line 20.
4. Deferred gain is realized gain minus recognized gain. It matches line 24 when line 23 equals line 20. This walkthrough does not compute line 21 recapture.
5. Run the replacement value test: subtract the replacement price from the sale price. A positive result is the value gap. Then read line 15, because exchange expenses can reduce boot.
6. Set the clock from the transfer date: written identification on day 45, and receipt on the earlier of day 180 or the return due date, including extensions.

Net liability relief is the excess of the debt the other party takes on over the debt you take on, the cash you pay, and any non-like-kind property you give up. The instructions tell you to reduce line 15 by exchange expenses, not below zero, and to put any unused expenses on line 18. The instructions point to Regulations section 1.1031(d)-2 for the line 15 through line 20 example.

In that example, Taylor receives $40,000 cash and assumes a larger mortgage than the one given up. Line 15 is $40,000, line 19 is $120,000, and line 20 is $40,000. A page that stops before line 21 shows $80,000 of deferred gain. If section 1245 recapture on line 21 exceeds line 20, line 23 and line 24 change. A CPA owns that line.

Run your own prices in the 1031 exchange calculator. It applies these steps in the browser and does not file Form 8824.

What does the replacement value test compare?

The replacement value test compares the price of the property you receive with the sale price of the property you give up. If the replacement price is lower, the difference is the value gap.

Form 8824 does not have a line named "replacement value test." The test is the planning reading of line 15. A lower purchase price has to come out as cash, as a smaller new loan, or as exchange expenses. Cash and net mortgage relief are boot. Exchange expenses reduce line 15 first.

A gap that equals only the exchange expenses can leave line 15 at zero when you replace the debt and take no cash. A gap that remains after expenses is boot. Adding your own cash can offset net mortgage relief. It does not erase cash you choose to keep.

The replacement still has to work as a rental. Cap rate uses net operating income divided by price, and that income is what has to carry the new debt. Read how NOI is calculated, then screen the purchase in the cap rate calculator and the cash flow analyzer.

When do the 45-day and 180-day deadlines fall?

Both clocks start when you transfer the property you give up. The Form 8824 instructions state the two dates in one paragraph: identify the replacement within 45 days after that transfer, and receive it within 180 days, or by the due date of your tax return including extensions, whichever is earlier.

Identification has to be in writing. The instructions require a signed document, or a written agreement signed by all parties, that describes the replacement in a clear way, such as a legal description or a street address. You send it to the person who must transfer the replacement to you, or to another person involved in the exchange, by day 45. If you receive the replacement before the end of that 45-day period, the instructions treat identification as met.

A missed deadline is not the same bill as planned boot. Tax on planned boot covers the boot. Missing the date, or taking the sale proceeds yourself, can make the whole gain taxable. Most exchangers use a qualified intermediary so they do not take the funds. The instructions say a transfer through a qualified intermediary is treated as a like-kind exchange, and that your agent and a related party cannot serve as that intermediary.

What does one partial exchange look like in dollars?

This illustration uses round inputs. It is not a closing statement and not a tax bill. Sale price $500,000. Exchange expenses $30,000. Adjusted basis $280,000. Liabilities relieved $200,000. Replacement price $450,000. Liabilities assumed $180,000. Cash paid $0. No new cash is added. Transfer date November 2, 2026. The 2026 return is due April 15, 2027, with no extension entered.

The replacement is $50,000 below the sale price. That value gap is not the boot. Form 8824 line 15 nets cash received, the two liabilities, and cash paid, then subtracts exchange expenses.

Cash received before expenses is $500,000 minus $200,000 of liabilities relieved, plus $180,000 of liabilities assumed, minus the $450,000 replacement, plus $0 of cash paid. That is $30,000. Net liability relief is $200,000 minus $180,000 minus $0, which is $20,000. Line 15 before expenses is $30,000 plus $20,000, which is $50,000, the same as the value gap. Exchange expenses of $30,000 reduce line 15 to $20,000 of boot. Cash you keep is $0. The $20,000 is the debt that was not replaced.

Realized gain is $500,000 minus $30,000 minus $280,000, or $190,000. Recognized gain is the smaller of boot and realized gain, $20,000. Deferred gain is $170,000. The value test fails because the replacement misses the sale price by $50,000, and that price gap is larger than the boot.

Day 45 is December 17, 2026. Day 180 is May 1, 2027. April 15, 2027 is earlier, so that return due date is the receipt deadline. Change any input in the 1031 exchange calculator and the lines move with it. The 1031 checklist is a separate glossary. It does not compute these amounts.

Frequently asked questions

What is a partial 1031 exchange?

A partial 1031 exchange is a like-kind exchange of real property in which you also receive money or other property that is not like-kind. The IRS says you recognize gain to the extent of that money and other property. You defer the rest of the realized gain. You cannot recognize a loss.

How is boot taxed in a partial 1031?

Boot is the Form 8824 line 15 amount: cash, other non-like-kind property, and net liability relief, after exchange expenses. Recognized gain is the smaller of that amount and your realized gain, and it is not below zero. The tax rate on that slice is a separate computation for your CPA, including any recapture.

What is the replacement value test on a 1031?

The replacement value test asks whether the replacement price is at least the sale price of the property you give up. The shortfall is the value gap. It is a planning comparison, not a separate line on Form 8824. Line 15 is the tax result after expenses, debt, and cash.

When do the 45-day and 180-day deadlines start?

Both clocks start the day you transfer the property you give up. Written identification is due 45 days later. You must receive the replacement by the earlier of 180 days after the transfer or the due date of your return for that year, including extensions. A missed date can make the whole gain taxable.

Does a partial 1031 let me recognize a loss?

No. The IRS like-kind exchange page says you must recognize gain to the extent of other property and money received, and you cannot recognize a loss. If realized gain is zero or a loss, line 20 is zero. A loss on a sale outside section 1031 is a different transaction.

Where do I run the boot and deferred gain math?

Use the 1031 exchange calculator on this site. It applies the Form 8824 line 15, line 19, line 20, and line 24 illustration to numbers you type, then lists the replacement value gap and the 45-day and 180-day dates. It is planning math, not a filed Form 8824.

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Sources

1. IRS, Like-kind exchanges - Real estate tax tips, page last reviewed May 1, 2026 - https://www.irs.gov/businesses/small-businesses-self-employed/like-kind-exchanges-real-estate-tax-tips
2. IRS, Instructions for Form 8824, Like-Kind Exchanges, including lines 5, 6, 15, 18, 19, and 20, and the Taylor example - https://www.irs.gov/instructions/i8824
3. The Form 8824 instructions cite Regulations section 1.1031(d)-2 for lines 15 through 20, and Regulations section 1.1031(k)-1(k) for disqualified persons on the 45-day identification - https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/section-1.1031(d)-2