1031 Exchange Calculator
Calculate tax deferral with 1031 like-kind exchange. Includes boot calculation, depreciation recapture, 45/180-day timeline, and capital gains savings.
Relinquished Property (Property You Are Selling)
Replacement Property (Property You Are Buying)
Tax Rates
Total Tax Deferred
$43,560
Critical 1031 Exchange Timeline
Boot Analysis (Taxable Portion)
Boot is taxable in the year of the exchange. To avoid boot, ensure replacement property price and new mortgage are both equal to or greater than the sold property.
Exchange vs Standard Sale Comparison
| Category | With 1031 Exchange | Standard Sale |
|---|---|---|
| Sale Price | $500,000 | $500,000 |
| Adjusted Basis | $300,000 | $300,000 |
| Realized Gain | $170,000 | $170,000 |
| Capital Gains Tax | $3,458 | $28,560 |
| Depreciation Recapture Tax | $1,513 | $12,500 |
| State Tax | $1,029 | $8,500 |
| Total Tax | $6,000 | $49,560 |
| Tax Savings | $43,560 | - |
Tax Allocation
Replacement Property Details
The new basis carries over the deferred gain. When you eventually sell without a 1031 exchange, the deferred gain becomes taxable.
Keys to a Successful 1031 Exchange
- 1.Use a Qualified Intermediary (QI) - You cannot touch the sale proceeds directly
- 2.Meet or exceed the sale price - Replacement property should equal or exceed relinquished property value
- 3.Reinvest all equity - Any cash out creates taxable boot
- 4.Replace debt with equal or greater debt - Paying down mortgage creates mortgage boot
- 5.Same taxpayer rule - The same entity that sells must buy the replacement property
Important Disclaimer
This calculator provides estimates for educational purposes only. 1031 exchanges are complex transactions with strict IRS requirements. Consult a qualified intermediary (QI) and tax professional before proceeding with a 1031 exchange. Deadlines are absolute and cannot be extended, even for weekends or holidays. Individual tax situations vary significantly.
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About This Calculator
The 1031 Exchange Calculator helps real estate investors calculate potential tax deferrals when exchanging investment properties. Named after Section 1031 of the Internal Revenue Code, this powerful tax strategy allows you to defer capital gains taxes by reinvesting proceeds into "like-kind" replacement property. In 2025-2026, with capital gains rates up to 23.8% (including NIIT) plus state taxes, a successful 1031 exchange can defer hundreds of thousands in taxes.
Understanding the strict 45-day identification and 180-day closing deadlines is critical—these timeframes cannot be extended for any reason, including weekends or holidays. Our calculator helps you analyze boot, depreciation recapture, and compare the tax impact of exchanging versus selling outright.
How to Use the 1031 Exchange Calculator
- 1Enter your relinquished property sale price and original purchase price to calculate total gain.
- 2Input accumulated depreciation from your tax records (total depreciation claimed over ownership).
- 3Add selling costs (commissions, closing costs) and current mortgage balance if applicable.
- 4Enter the replacement property purchase price you're considering.
- 5Input the new mortgage amount to calculate potential mortgage boot.
- 6Adjust tax rates to match your situation (federal, state, depreciation recapture, NIIT if applicable).
- 7Review tax deferral amount, boot calculation, and critical timeline deadlines.
Formula
Tax Deferred = Total Tax Without Exchange - Tax on Boot
Where:
Total Tax = Capital Gains Tax + Depreciation Recapture Tax + NIIT + State Tax
Boot = Cash Boot + Mortgage Boot
Cash Boot = Net Proceeds - Equity Reinvested
Mortgage Boot = Old Mortgage - New Mortgage (if positive)The 1031 exchange defers ALL taxes if you reinvest 100% of equity and replace your debt. Any boot (cash received or debt reduction) is taxable up to the amount of your realized gain. The deferred gain reduces the tax basis of your replacement property, postponing—not eliminating—the tax until a future taxable sale.
The 45-Day and 180-Day Rules (2025-2026)
The 1031 exchange has two absolutely critical deadlines that cannot be extended:
45-Day Identification Period:
- Starts the day after closing on your relinquished property
- Must identify potential replacement properties in writing to your QI
- Identification must be specific (address, legal description)
Three Identification Rules:
| Rule | Description | When to Use |
|---|---|---|
| 3-Property Rule | Identify up to 3 properties regardless of value | Most common, safest |
| 200% Rule | Any number of properties totaling ≤200% of relinquished value | More flexibility needed |
| 95% Rule | Any number if you acquire 95%+ of identified value | Rarely practical |
180-Day Exchange Period:
- Must close on replacement property within 180 days of selling
- Runs concurrently with (not after) the 45-day period
- Weekends and holidays do NOT extend the deadline
- Tax filing deadline can shorten this period
Example Timeline:
| Event | Date | Notes |
|---|---|---|
| Sale closes | January 15 | Day 0 |
| 45-day deadline | March 1 | Identification due |
| 180-day deadline | July 14 | Must close |
Critical: If your tax return is due April 15 and you haven't filed an extension, that becomes your 180-day deadline—not the calculated date.
Understanding Boot and How to Avoid It
"Boot" is any property or cash received in an exchange that doesn't qualify for tax deferral. Boot is taxable in the year of the exchange.
Types of Boot:
| Boot Type | What Triggers It | How to Avoid |
|---|---|---|
| Cash Boot | Cash received at closing | Reinvest ALL equity |
| Mortgage Boot | Reducing debt level | New mortgage ≥ old mortgage |
| Like-Kind Boot | Personal property (appliances, equipment) | Exclude from exchange |
Cash Boot Example:
- Net sale proceeds: $500,000
- Equity reinvested: $450,000
- Cash boot (taxable): $50,000
Mortgage Boot Example:
- Old mortgage: $300,000
- New mortgage: $200,000
- Mortgage boot (taxable): $100,000
How to Avoid Boot Entirely:
- Replacement property price ≥ Relinquished property net sale price
- New mortgage ≥ Old mortgage being paid off
- Reinvest ALL net proceeds (no cash out)
- Exclude personal property from exchange documents
Partial Exchange Option: If you need some cash, a partial exchange is still beneficial. You defer taxes on the reinvested portion and only pay taxes on the boot received.
Depreciation Recapture Tax Implications
Depreciation recapture is often overlooked but creates significant tax liability upon sale.
How Depreciation Works:
- Residential rental: 27.5-year depreciation schedule
- Commercial property: 39-year depreciation schedule
- Reduces taxable rental income each year
- Creates tax benefit during ownership
Recapture Tax at Sale:
| Tax Category | Rate | Applies To |
|---|---|---|
| Depreciation Recapture | 25% | All claimed depreciation |
| Capital Gains | 0%, 15%, or 20% | Appreciation above adjusted basis |
| NIIT | 3.8% | AGI over $200K/$250K |
| State Tax | 0-13.3% | Varies by state |
Example Calculation:
- Original purchase: $400,000
- Depreciation claimed: $80,000
- Adjusted basis: $320,000
- Net sale price: $500,000
- Total gain: $180,000
Tax Without 1031:
- Depreciation recapture (25%): $80,000 × 25% = $20,000
- Capital gains (20%): $100,000 × 20% = $20,000
- NIIT (3.8%): $180,000 × 3.8% = $6,840
- Federal tax: $46,840 (before state)
A 1031 exchange defers BOTH capital gains AND depreciation recapture taxes.
Reverse 1031 Exchanges
A reverse exchange allows you to acquire replacement property BEFORE selling your relinquished property—essential in competitive markets.
How Reverse Exchanges Work:
- Exchange Accommodation Titleholder (EAT) acquires replacement property
- You have 45 days to identify which property you'll sell
- You have 180 days to complete the entire exchange
- EAT transfers replacement property after relinquished property sells
Cost Comparison:
| Exchange Type | Typical Cost | Complexity |
|---|---|---|
| Standard Forward | $750-$1,500 | Low |
| Reverse Exchange | $5,000-$15,000 | High |
| Improvement Exchange | $3,000-$8,000 | Medium |
When Reverse Exchange Makes Sense:
- Found perfect replacement before selling
- Competitive market—can't wait for sale
- Relinquished property may take time to sell
- Market timing advantages
Disadvantages:
- Significantly higher costs
- More complex legal structure
- Requires interim financing
- Not all QIs offer reverse exchanges
Improvement (Construction) Exchanges: You can also exchange into a property that needs improvements, with the QI holding title while renovations occur. This allows you to "build up" to equal value.
Common 1031 Exchange Mistakes
Even experienced investors make these costly errors:
1. Missing Deadlines
- 45 and 180-day deadlines are ABSOLUTE
- No extensions for weekends, holidays, or emergencies
- Federal disasters may provide limited relief
- Mark deadlines on multiple calendars
2. Touching the Money
- Sale proceeds must go directly to QI
- You cannot receive funds at any point
- Even constructive receipt disqualifies exchange
- Bank accounts in your name = disqualified
3. Wrong Entity/Vesting
- Same taxpayer must sell AND buy
- John Smith sells → John Smith must buy
- Not John Smith LLC or different entity
- Plan entity structure BEFORE exchange
4. Related Party Transactions
- Special rules for family members
- 2-year holding requirement applies
- Both parties must hold for 2 years
- Consult tax advisor before related exchanges
5. Ignoring State Tax Rules
- Some states don't recognize federal 1031 treatment
- California has "clawback" provisions for out-of-state exchanges
- Montana, California require special reporting
- Moving property across state lines may trigger tax
6. Inadequate QI Due Diligence
- Choose QI with E&O insurance
- Verify fidelity bond coverage
- Check financial stability
- Your funds could be at risk if QI fails
Delaware Statutory Trusts (DSTs)
DSTs have become popular replacement property options for 1031 exchanges, especially for investors seeking passive income.
What is a DST? A Delaware Statutory Trust holds real estate that qualifies as like-kind property for 1031 exchanges. Multiple investors own fractional interests in institutional-quality properties.
DST Advantages:
| Benefit | Description |
|---|---|
| Passive Investment | No management responsibilities |
| Access to Large Properties | $50M+ properties in fractional shares |
| Professional Management | Institutional operators handle all |
| Fixed Income Stream | Projected monthly distributions |
| Estate Planning | Easier division among heirs |
DST Considerations:
- Illiquid investment (7-10 year typical holds)
- Limited control over property decisions
- Accredited investor requirement usually applies
- Due diligence on sponsor critical
- Fees can be higher than direct ownership
When DSTs Make Sense:
- Retiring from active property management
- Want institutional-quality assets
- Need to meet tight exchange deadlines
- Diversifying across property types/markets
- Planning for estate distribution
2025-2026 Exchange Considerations
Current market conditions and regulations affecting 1031 exchanges:
Tax Rate Environment:
| Tax Type | 2025-2026 Rate |
|---|---|
| Top Capital Gains | 20% |
| NIIT Surcharge | 3.8% |
| Depreciation Recapture | 25% |
| Combined Federal Max | 28.8% |
| State (CA example) | 13.3% |
| Total Potential | 42.1% |
Year-End Exchange Planning:
- November/December sales may have shortened 180-day windows
- Tax filing deadline (April 15) can become exchange deadline
- File extension to preserve full 180 days
- Installment sale treatment may apply if funds span year-end
Current Market Factors:
- Higher interest rates affecting replacement property financing
- DST options remain popular for identification flexibility
- Some markets showing slower sales, impacting timelines
- QI fee increases due to compliance costs
Legislative Watch:
- Proposals to limit 1031 exchange amounts have appeared
- No current legislation has passed
- Monitor tax law changes for potential sunset provisions
- Consider completing planned exchanges while rules are favorable
Best Practices for 2025-2026:
- Start replacement property search before sale closes
- Have backup properties identified
- File tax extension if sale occurs after October
- Verify QI financial stability
- Document investment intent for both properties
Pro Tips
- 💡Start looking for replacement properties BEFORE your sale closes to maximize your 45-day identification window—this is the biggest mistake investors make.
- 💡Always identify at least 3 backup properties under the 3-property rule in case your first choice falls through.
- 💡Use a QI with Errors & Omissions insurance and fidelity bond coverage—your funds are at risk if they fail.
- 💡File a tax extension if you sell property late in the year to preserve the full 180-day exchange period.
- 💡Consider Delaware Statutory Trusts (DSTs) as backup identification properties—they can be identified quickly if needed.
- 💡Keep detailed records of all property improvements to accurately track your adjusted basis for depreciation recapture.
- 💡Never touch the sale proceeds yourself—even brief receipt disqualifies the entire exchange.
- 💡Verify your replacement property's value and mortgage will equal or exceed relinquished property to avoid boot.
- 💡Plan entity structure before the exchange—the same taxpayer must sell and buy.
- 💡Consult a tax advisor for state-specific rules, especially for California's clawback provisions on out-of-state exchanges.
- 💡Keep a running list of potential replacement properties so you are never scrambling during the 45-day identification period.
- 💡Consider multiple smaller replacement properties for diversification rather than one large property.
- 💡Understand that improvement exchanges allow you to use exchange funds for construction on the replacement property.
- 💡Work with a real estate attorney experienced in 1031 exchanges, not just your regular attorney.
Frequently Asked Questions
Since 2018, only real property qualifies for 1031 exchanges. "Like-kind" is broadly interpreted: you can exchange an apartment building for raw land, a retail center for an office building, or a rental house for commercial property. Both properties must be held for investment or business use and located in the United States. Primary residences do not qualify.
