Arizona Real Estate License Practice Exam

In the context of a like-kind exchange, the term for property that is not considered like-kind is referred to as boot. Boot is any form of compensation that is received in a like-kind exchange other than the like-kind property itself. It can be cash or other property that is included in the exchange, and it is treated differently for tax purposes.

When a taxpayer exchanges real estate, if they receive something of different value or type along with the like-kind property, that additional value is considered boot. The receipt of boot can result in a taxable event, as it may generate a gain that must be recognized for tax purposes. For instance, if a property owner exchanges a rental property for another rental property and also receives cash as part of the deal, that cash qualifies as boot.

This understanding is crucial for real estate professionals and investors participating in real estate transactions. In such exchanges, it's important to recognize how boot influences the overall tax liability and to strategize accordingly to minimize any tax implications.