Estimate the federal tax that a qualifying Section 1031 real-property exchange may defer. This simplified model does not determine eligibility or fully model debt, all forms of boot, transaction expenses, or state tax.
Estimated federal tax deferral
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Realized gain
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Modeled Section 1250 portion
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Price-shortfall boot proxy
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Simplified replacement basis
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The tax a like-kind exchange actually postpones
When you sell an investment property outright, two separate taxes come due in the same year. The appreciation above your basis is taxed as a long-term capital gain, and the portion of your gain that represents depreciation you previously wrote off gets clawed back as unrecaptured Section 1250 gain, taxed at a federal rate of up to 25 percent. A Section 1031 exchange does not erase either of these. It rolls them forward into the basis of the property you buy next, so the clock keeps running but the bill does not arrive yet.
This calculator assumes the relinquished and replacement assets are qualifying real property held for investment or business use and that a compliant exchange structure is used. It models only a price shortfall between net sale proceeds and replacement cost as boot. Actual recognized gain can also be affected by cash received, liability relief, exchange expenses, non-like-kind property, related-party rules, and other facts. Equal-or-greater replacement value by itself does not establish full deferral.
A partial exchange where boot creeps in
Picture a duplex you sell for $500,000. Your adjusted basis sits at $200,000, you have claimed $80,000 of depreciation over the years, and closing costs run $30,000. Net proceeds are therefore $470,000, and your realized gain is $270,000. Of that gain, $80,000 carries the depreciation recapture label and the remaining $190,000 is straight long-term gain. If you reinvest only $450,000 instead of the full $470,000, the model treats the $20,000 shortfall as cash boot. It then applies the editable Section 1250 rate first as a simplifying assumption, producing a $5,000 estimate of federal tax due now. Actual character and recognition depend on the transaction facts.
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In this price-only model, a $470,000 replacement removes the $20,000 shortfall and produces a $200,000 basis estimate; a $600,000 replacement produces a $330,000 estimate. Neither result proves that the real transaction achieves full deferral because the model does not track liabilities or every form of boot. The chart shows the estimated federal tax split for the editable example.
The two clocks that sink most exchanges
The arithmetic is the easy part. Deals collapse on timing. From the day you close on the relinquished property you generally have 45 calendar days to identify replacement candidates in writing. The exchange period generally ends 180 days after the transfer or on the due date, including extensions, of your tax return for that year, whichever is earlier. The other quiet trap is debt: to defer the full gain you must replace the mortgage you paid off, not just the equity. Walking away with less debt counts as mortgage boot even if every dollar of cash gets reinvested. You can offset a debt reduction by adding cash of your own to the replacement purchase, which is a move seasoned investors use to keep a deal fully tax-deferred when the new loan is smaller than the old one. Build a few days of buffer into both deadlines rather than aiming for the last possible date, because a single delayed inspection or financing snag can blow a clock you cannot reset.
Common questions
Can I touch the sale proceeds between closings?
Actual or constructive receipt of the sale proceeds before the replacement purchase can prevent deferral of the amount received. A qualified intermediary is commonly used to restrict access to the funds and complete a deferred exchange, but the agreement and timing rules matter. Arrange the structure before closing with a qualified intermediary and tax adviser.
What happens to the deferred tax if I never sell again?
Deferred gain carries into the replacement property's basis and can become taxable on a later disposition. Property included in a decedent's estate may receive a basis adjustment under current law, but the result depends on ownership, estate inclusion, prior gifts, and the law in effect at death. Treat estate planning as a separate legal and tax analysis, not as a guaranteed way to erase deferred gain.
Does the calculator handle state tax?
No. It estimates federal tax only. State conformity, filing, and tracking rules vary, so confirm the rules for every state connected to the relinquished and replacement properties before relying on the estimate.