Is the reduction of mortgages in an exchange taxable?
Yes in many cases but not all. Yes in many cases but not all. The amount of mortgage relief in an exchange is called “mortgage boot received” and is taxable to the extent it is less than the realized gain had the property been sold. However, if the exchangor adds cash to the transaction, gives cash boot, the cash boot given will offset the mortgage boot received and may reduce the tax liability to zero. This potential tax liability is independent of the type or nature of the debt given or received. The debt may be new mortgages or mortgages taken subject to or assumed by the other party, may be recourse or non recourse or may be purchase money mortgages financed by the seller. Also, mortgages given up and mortgages taken on may be in first position or may be subordinate to one or more other mortgages. The amount of mortgage relief is the difference between the mortgages given up on the disposition of the relinquished property and the mortgages taken on with the acquisition of the repla
