1031 Exchange Calculator
Estimate the capital gains and depreciation recapture tax you can defer by rolling investment property proceeds into like-kind replacement real estate.
1. Relinquished Property (Property Sold)
$
Initial cost basis when you acquired the property.
$
Additions, roof, renovations added to tax basis (not routine repairs).
$
Total depreciation deducted across all tax years (Section 1250).
$
Expected or contracted contract sales price.
$
Broker commissions, title, escrow, and legal closing fees.
$
Loan balance paid off at closing (enter 0 if owned free & clear).
2. Replacement Property (Target Acquisition)
$
Price of new like-kind property (must be equal or greater to avoid boot).
$
Financing on new property (lower debt without added cash triggers mortgage boot).
3. Tax Rates & IRS Schedule
%
IRS Section 1250 standard statutory rate is 25%.
%
Enter state rate (e.g. 0% TX/FL, 5% NC, 9.3% CA, 10.75% NJ).
Enter your property sale details above
Provide your purchase basis and selling price or click "Try an example" to see live tax deferral metrics.
Total Tax Deferred via 1031 Exchange
$0
100% Tax Deferred
All realized capital gains and depreciation recapture taxes are fully deferred into your replacement property.
Outright Sale Tax Liability
$0
Total tax bill if sold without exchange
Total Realized Gain
$0
Recapture: $0 | Capital Gain: $0
Taxable Boot Recognized
$0
Tax owed in exchange: $0
New Property Tax Basis
$0
Carried-over adjusted tax basis
Capital Preservation: Outright Sale vs. 1031 Exchange
Retained Net Equity
Tax Paid to IRS / State
Reinvested Tax-Deferred Capital
| Financial Component | Calculation Basis | Amount |
|---|---|---|
| Adjusted Tax Basis (Old Property) | Original Price + Improvements − Depreciation | $0 |
| Net Sales Price | Gross Sale Price − Selling Costs | $0 |
| Net Cash Proceeds from Sale | Net Sale Price − Mortgage Payoff | $0 |
| Total Realized Capital Gain | Net Sale Price − Adjusted Tax Basis | $0 |
| • Section 1250 Depreciation Recapture | Taxed at 25.0% | $0 |
| • Federal Long-Term Capital Gains Tax | Taxed at 20.0% | $0 |
| • Net Investment Income Surtax (NIIT) | Taxed at 3.8% | $0 |
| • State Capital Gains Tax | Taxed at 5.0% | $0 |
| Total Tax Liability (Outright Sale) | 100% Tax Exposure | $0 |
| Recognized Taxable Boot (Exchange) | Cash Boot + Uncovered Mortgage Boot | $0 |
| Tax Owed in 1031 Exchange | Taxes triggered by recognized boot | $0 |
| Net Tax Deferred (Wealth Preserved) | Total Tax − Tax on Boot | $0 |
How to Use This Calculator
A Section 1031 like-kind exchange allows real estate investors to reinvest the full proceeds of a property sale into replacement real estate without paying immediate capital gains or depreciation recapture taxes. Follow these 4 practical steps to analyze your exchange:
- Enter Your Relinquished Property Basis: Input your original purchase price, all cumulative capital improvements made over ownership (such as a new roof, HVAC additions, or major renovations), and the total accumulated depreciation claimed on your annual tax returns.
- Input Sale Pricing and Closing Expenses: Enter your expected or agreed gross sales price, broker commissions and escrow fees, and your outstanding mortgage payoff balance to establish your net sales proceeds.
- Model Your Target Replacement Property: Enter the target purchase price and anticipated loan balance for the new property you plan to acquire. To defer 100% of taxes, remember the "Equal or Greater" benchmark: your replacement purchase price and equity reinvestment must meet or exceed your relinquished property.
- Review Taxes Deferred vs. Taxable Boot: Compare your total tax bill under an outright sale against your tax liability in a 1031 exchange. If you down-purchase or pull cash out, review the taxable boot line items to see the exact tax consequences before closing.
The Formula
The mathematical framework of a 1031 exchange evaluates your adjusted tax basis, calculates the total realized gain across depreciation and appreciation tiers, and determines taxable boot:
Adjusted Tax Basis = Original Purchase Price + Capital Improvements − Accumulated Depreciation
Net Sales Price = Gross Selling Price − Selling Expenses
Total Realized Gain = Net Sales Price − Adjusted Tax Basis
Taxable Boot = Cash Boot + Mortgage Relief Boot
Recognized (Taxable) Gain = min(Total Realized Gain, Taxable Boot)
Taxes Deferred = Total Outright Tax − Taxes Incurred on Boot
Net Sales Price = Gross Selling Price − Selling Expenses
Total Realized Gain = Net Sales Price − Adjusted Tax Basis
Taxable Boot = Cash Boot + Mortgage Relief Boot
Recognized (Taxable) Gain = min(Total Realized Gain, Taxable Boot)
Taxes Deferred = Total Outright Tax − Taxes Incurred on Boot
Variable Definitions
- Adjusted Tax Basis: The unrecovered capital investment in the property for tax purposes. Taking depreciation lowers this basis, increasing your taxable gain when sold.
- Depreciation Recapture (IRS Section 1250): The cumulative depreciation deductions taken during the ownership period, taxed at a federal flat rate of up to 25%.
- Long-Term Capital Gain: The net sales price above the original un-depreciated cost basis, taxed at federal preferential rates (typically 15% or 20%).
- Net Investment Income Tax (NIIT): A 3.8% surtax created under the Affordable Care Act that applies to net investment income for high-income taxpayers (MAGI above $200,000 for single filers or $250,000 for married couples).
- Boot: Non-like-kind property received in the transaction. This occurs when an investor does not reinvest all net sales cash (cash boot) or takes on a lower mortgage without adding cash (mortgage boot).
Understanding the "Equal or Greater" Rule
To achieve a 100% tax-free transaction at closing, you must satisfy two strict criteria established by the IRS:
- Value Requirement: The purchase price of the replacement property must be equal to or greater than the net selling price of the relinquished property.
- Equity Requirement: Every dollar of net cash proceeds generated from the sale must be transferred directly through a Qualified Intermediary (QI) into the purchase of the replacement property.
Example: A Multi-Family Property Sale
Consider an investor selling a 4-unit apartment building originally acquired for $500,000 who is considering whether to execute a 1031 exchange or take an outright sale:
- Original Purchase Price: $500,000
- Capital Improvements: $50,000 (new exterior siding and roof)
- Accumulated Depreciation Claimed: $100,000
- Gross Selling Price: $900,000
- Selling Expenses (6% commissions & escrow): $54,000
- Mortgage Payoff Balance: $300,000
- Tax Assumptions: 25% depreciation recapture, 20% federal LTCG, 3.8% NIIT, 5.0% state capital gains tax.
Step-by-step arithmetic:
- Compute Adjusted Basis:
$500,000 + $50,000 − $100,000 = $450,000. - Compute Net Sales Price:
$900,000 − $54,000 = $846,000. - Compute Net Cash Proceeds:
$846,000 − $300,000 = $546,000. - Calculate Total Realized Gain:
$846,000 − $450,000 = $396,000.- Depreciation Recapture portion: $100,000
- Long-Term Capital Gain portion: $296,000
- Outright Sale Tax Hit:
- Depreciation Recapture:
$100,000 × 25% = $25,000 - Federal LTCG:
$296,000 × 20% = $59,200 - NIIT (3.8%):
$396,000 × 3.8% = $15,048 - State Tax (5.0%):
$396,000 × 5% = $19,800 - Total Tax Owed: $119,048
- Depreciation Recapture:
The 1031 Exchange Outcome: By rolling the proceeds into a replacement property priced at $1,000,000 with a $400,000 mortgage and reinvesting the full $546,000 cash proceeds (plus $54,000 additional equity), the investor has $0 boot. The full $119,048 tax liability is deferred, keeping 100% of their equity working in real estate rather than surrendering 30% of their total profit to taxes.
Frequently Asked Questions
What are the rules for a 1031 exchange?
Under Section 1031 of the Internal Revenue Code, an investor can defer 100% of capital gains and depreciation recapture taxes by exchanging real property held for business or investment into 'like-kind' replacement real estate. Key rules require using a qualified intermediary (QI) to hold funds, acquiring replacement property of equal or greater value, reinvesting all net cash proceeds, and meeting strict 45-day identification and 180-day closing deadlines.
What is the "Equal or Greater" rule in a 1031 exchange?
To achieve complete tax deferral without paying a dollar of tax, you must follow two benchmarks: purchase replacement property with a net sales price equal to or greater than the relinquished property, and reinvest all net equity (cash proceeds) without taking cash out. Additionally, any reduction in debt must be offset by new financing or additional cash invested.
What is "boot" and how is it taxed?
"Boot" is any non-like-kind property or benefit received in an exchange, most commonly cash pulled out (cash boot) or mortgage debt relief not matched on the replacement property (mortgage boot). Boot is taxable up to the total realized capital gain, triggering Section 1250 depreciation recapture tax first, followed by federal and state capital gains tax.
How does depreciation recapture work in a 1031 exchange?
Accumulated depreciation taken over the life of an investment property is typically subject to a 25% unrecaptured Section 1250 gain upon an outright sale. In a valid 1031 exchange, this entire depreciation recapture liability is deferred and rolls forward into the tax basis of the replacement property.
What are the strict 45-day and 180-day deadline rules?
The IRS mandates two rigid calendar milestones beginning on the day the relinquished property closes: you have exactly 45 calendar days to formally identify potential replacement properties in writing to your qualified intermediary, and exactly 180 calendar days (or the tax filing due date, whichever comes first) to complete the acquisition. These deadlines include weekends and holidays with zero extensions.