J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

6.3 Receipt of Cash and Other Property—“Boot”

If, in addition to like-kind (6.1) property, you receive cash or other property (unlike kind), gain is taxable up to the amount of the cash and the fair market value of any unlike property received. The additional cash or unlike property is called “boot.” If a loss was incurred on the exchange, the receipt of boot does not permit you to deduct the loss unless it is attributable to unlike-kind property you gave up in the exchange.

If you transfer mortgaged property, the amount of the mortgage is part of your boot. If both you and the other party transfer and receive mortgaged property, the party giving up the larger debt treats the excess as taxable boot. The party giving up the smaller debt does not have boot; see also 31.3. If you pay cash to the other party, add this to the mortgage you receive in figuring which party has given up the larger debt.

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Caution

Deducting a Loss

You may deduct a loss incurred on an exchange if it is attributable to unlike property transferred in the exchange. The loss is recognized to the extent that the basis of the unlike property (other than cash) transferred exceeds its fair market value. However, a loss is not recognized if the unlike property is received together with the like-kind property in the exchange. Such a loss is not deductible.

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Form 8824.

The ...