The short answer
Not without making the problem bigger. Any dollar you take out of the exchange is money received under section 1031(b), so cash taken to pay the tax on your boot is boot too, and it is taxed in turn. The intermediary also cannot hand money back mid-exchange: the exchange agreement must deny you any right to receive it before the exchange period ends, except at narrow points. The cheaper path is usually to pay the estimated tax from other cash and leave the exchange whole.
At a glance
| Funds taken out | Boot, taxed up to your realized gain |
|---|---|
| Mid-exchange withdrawal | Barred by the exchange agreement until the regulation's release points |
| What the intermediary can pay | Transactional closing-statement items, not your income tax |
| Gross-up | Cash needed to net T after tax at rate r is T ÷ (1 − r) |
| Estimated tax safe harbor | 100% of last year's tax, or 110% if last year's AGI was over $150,000 |
| 2026 estimated tax due dates | April 15, June 15, September 15, 2026 and January 15, 2027 |
Money taken to pay the tax is more money received
Section 1031(b) recognizes gain 'in an amount not in excess of the sum of such money and the fair market value of such other property.' Nothing in that sentence cares what the money is for, so a withdrawal earmarked for the IRS is counted exactly like a withdrawal spent on a car.
The extra boot stops costing tax only when total boot reaches your realized gain, because recognized gain is capped there. Below that cap, every dollar you pull out to pay tax creates new tax of its own. What boot is lays out the cap and the forms of boot.
The intermediary is not allowed to release it mid-exchange anyway
For the qualified intermediary safe harbor to hold, Reg. Section 1.1031(k)-1(g)(6) requires the agreement to say you have no right 'to receive, pledge, borrow, or otherwise obtain the benefits of money or other property before the end of the exchange period.' The exits are narrow: after day 45 if you identified nothing, after you receive everything you identified and are entitled to, or after a written contingency beyond your control.
The intermediary can pay certain items for you without breaking that rule. Paragraph (g)(7) disregards 'transactional items that relate to the disposition of the relinquished property or to the acquisition of the replacement property and appear under local standards in the typical closing statements.' Your income tax for the year is not a closing-statement item.
So money for the tax comes either before the funds reach the intermediary, by taking it at the sale closing as deliberate boot, or after the exchange ends, as leftover cash. Both are boot. The release timing is set out in when the intermediary releases funds, and the reason you cannot borrow against the account is in touching or borrowing exchange funds.
Worked example: paying $28,800 from the proceeds costs about $11,650 more
Hypothetical, round numbers, state tax ignored. Your exchange will leave $100,000 of mortgage boot no matter what, all of it inside the depreciation layer, taxed at 25% plus 3.8% net investment income tax, a combined 28.8%. The federal tax is $28,800.
Pay that from savings and the tax stays $28,800. Take it from the sale proceeds instead and the withdrawal is boot too. To net $28,800 after its own tax, you need $28,800 ÷ (1 − 0.288), about $40,450, and that extra boot carries about $11,650 of tax of its own.
The rates are from Topic 409 and the net investment income tax page; boot beyond the depreciation layer would be taxed at capital gain rates, and boot past your realized gain costs nothing more. Run your own numbers with your CPA.
- Pay from other cash: boot $100,000, federal tax $28,800.
- Gross up from the proceeds: boot about $140,450, federal tax about $40,450.
- Difference: about $11,650 of tax, and $40,450 less reinvested.
Plan the estimated payment instead of raiding the exchange
Publication 505 sets the 2026 rule: you generally owe estimated tax if you expect to owe at least $1,000 and withholding and credits will be less than the smaller of 90% of this year's tax or 100% of last year's. The second test rises to 110% if last year's AGI exceeded $150,000.
That prior-year safe harbor is the useful one in a sale year. Pay 100% or 110% of last year's tax through withholding or the April 15, June 15 and September 15, 2026 and January 15, 2027 installments, and the boot tax can wait for the April return without a penalty. Publication 505 also offers the annualized income installment method when income arrives in one quarter.
A state may collect part of the boot for you. California requires the intermediary to withhold when boot exceeds $1,500, as state withholding at closing explains.
Shrink the boot before you worry about paying for it
The best tax payment is the one you avoid. Debt boot can be cured by adding cash or debt on the replacement side, and leftover cash can go into property already on your identification list before day 180; see leftover cash after a 1031 exchange.
A Delaware statutory trust interest named on the list can take an exact-dollar remainder, and its allocated non-recourse loan can supply missing debt. Traditional DSTs close with financing already in place.
If you want cash from the sale on purpose, plan it as intentional boot and size the estimated payment at the same time.
Related questions
Can my intermediary pay my estimated tax directly to the IRS?
Not as part of the exchange. Reg. Section 1.1031(k)-1(g)(7) only disregards transactional items that appear on a typical closing statement, and any payment for your benefit is money you received.
If I take cash at the sale closing to cover the tax, is that boot?
Yes. Cash you take before the funds reach the intermediary is money received in the exchange and is recognized up to your realized gain.
Does taking more cash cost nothing once I hit my realized gain?
Correct. Recognized gain cannot exceed realized gain, so boot beyond that point adds no federal tax, though it still leaves the exchange.
When is the tax on boot due?
In the sale year, through estimated payments or withholding, with the balance due with the return. A payout in the next year can shift recognition under the installment rules.
Can I borrow against the exchange account to pay the tax?
No. The exchange agreement must deny you any right to pledge or borrow against the funds before the release points in the regulation.
Sources
Checked against these publications on September 30, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.