1031 Exchange Calculator

Calculate the tax deferral benefit of a 1031 like-kind exchange for investment property. Compare taxes paid vs. deferred.

Exchange Details

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Enter your property exchange details and click Calculate to see tax deferral benefits.

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Pro Tip

Consider a 'swap until you drop' strategy: do successive 1031 exchanges throughout your lifetime. At death, your heirs receive a stepped-up basis, effectively eliminating the deferred gain permanently.

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Understanding 1031 Like-Kind Exchanges

A 1031 exchange (named after Section 1031 of the Internal Revenue Code) allows real estate investors to defer capital gains taxes by reinvesting proceeds from the sale of an investment property into a "like-kind" replacement property.

To qualify, both properties must be held for investment or business use (not personal residences). The replacement property must be identified within 45 days and the exchange completed within 180 days. A qualified intermediary must hold the funds -- you cannot touch the proceeds.

If the replacement property costs less than the sale price, the difference is called "boot" and is taxable. To defer all taxes, the replacement property must be equal to or greater in value than the sold property, and all equity must be reinvested.

Depreciation recapture (taxed at 25%) is also deferred in a 1031 exchange. The new property's tax basis carries over from the old property, meaning the deferred gain will eventually be recognized when the replacement property is sold (unless another 1031 exchange is done).

1031 Exchange Tax Deferral

Tax Deferred = Tax Without Exchange - Tax With Exchange

Where:

Realized Gain = Sale price - adjusted basis (purchase price - depreciation)

Boot = Cash or non-like-kind property received (sale price - replacement price if positive)

Recognized Gain = The lesser of realized gain or boot received

Deferred Gain = Realized gain minus recognized gain

Example

Sell property for $500K (bought for $300K, $50K depreciation), buy replacement for $550K:

  • • Adjusted basis = $300,000 - $50,000 = $250,000
  • • Realized gain = $500,000 - $250,000 = $250,000
  • • Boot = $0 (replacement > sale price)
  • • Without exchange: ~$62,500 in taxes
  • • With exchange: $0 taxes (fully deferred)

Frequently Asked Questions

Can I do a 1031 exchange on my primary residence?
No. Section 1031 only applies to property held for investment or business use. Personal residences do not qualify. However, you may be eligible for the Section 121 exclusion ($250K/$500K) on your primary home instead.
What is the 45-day identification rule?
You must identify potential replacement properties within 45 calendar days of selling the relinquished property. You can identify up to 3 properties regardless of value, or more than 3 if their combined value does not exceed 200% of the sold property's value.
What is 'boot' in a 1031 exchange?
Boot is any non-like-kind property received in the exchange, including cash, debt relief, or personal property. Boot is taxable. To avoid boot, the replacement property must be equal or greater in value, and you must reinvest all equity.
Can I do a 1031 exchange across state lines?
Yes, like-kind exchanges can involve properties in different states. However, some states have clawback provisions requiring you to report the deferred gain if the replacement property is in a different state.
What happens to the deferred gain when I eventually sell?
The deferred gain carries forward to the replacement property through a reduced basis. When you eventually sell without doing another 1031 exchange, all deferred gains become taxable. Many investors do successive 1031 exchanges to defer indefinitely, and at death, heirs receive a stepped-up basis.