1031 tax question for partial exchange

[Ben Lin]

Hi BP,

I sold my property in CA for 755k and bought a property in Houston for 400k. Now, after months of trying I could not find another property to buy. So now I have a boot of 355k because I didn’t find anything else worth buying. Please note I used all the cash from my LA sale (366k after paying off the mortgage) and added my own money to buy the Houston property in cash. 

My question is do I pay taxes on that 355k boot although it was in the form of a mortgage? And if I do pay taxes do I get to deduct my original expenses from the LA sale? Such as renovation costs, money I paid for it, etc? If this is the case then I don’t owe capital gain taxes because I paid more to purchase and renovate the LA property than what I didn’t spend in the 1031 exchange? How does this work? Or do I just pay taxes on the 355k I didn’t spend without being able to deduct expenses?

My CPA is not 100 percent sure as well. If you have had the same experience please share. Any advice would be great! 

Thanks.