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The video discusses the concept of debt replacement in property exchanges. When relinquishing property, if there is a mortgage, a debt payoff will appear on the settlement statement. To achieve full tax deferral under the equal or up in value rule, it is necessary to reinvest the total sale amount into a new property, taking into account the net value after debt payoff. If the debt is not replaced with new debt or cash, this results in “mortgage boot,” which is considered a taxable gain. The net exchange value equals the relinquished property sale price minus closing costs and exchange fees, minus the debt payoff, potentially leading to trading down in value.