Estimate the federal tax deferred by a Section 1031 exchange. Note: state tax treatment varies (most states conform, but a few do not, confirm with your CPA).
Federal tax deferred via 1031
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Realized gain
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Depreciation recapture portion
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Taxable boot received
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Replacement property 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 is built for the investor weighing a real swap, not the dreamer. It assumes you are working with a qualified intermediary, that the relinquished and replacement assets are both real property held for investment or business use, and that you want to see the dollars at stake before you commit. The single lever that decides everything is whether the replacement property costs as much as the net proceeds of the sale. Buy up, and the gain defers in full. Buy down, and the shortfall becomes taxable boot.
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, you have pulled $20,000 of cash out of the deal. That $20,000 is boot, and the tool taxes it recapture-first at 25 percent, producing a $5,000 bill now. Everything else stays deferred.
| Step | Amount |
|---|---|
| Sale price minus $30,000 selling costs | $470,000 net |
| Realized gain (net proceeds minus $200,000 basis) | $270,000 |
| Recapture portion (capped at depreciation taken) | $80,000 |
| Cash not reinvested, taxed as boot | $20,000 |
| Tax due now on the boot (25% recapture) | $5,000 |
| Federal tax deferred by the exchange | $53,000 |
| Carryover basis in the new property | $200,000 |
For contrast, reinvesting the full $470,000 or more drops the boot to zero and defers the entire $58,000 federal bill, while the replacement basis becomes $330,000. The chart below shows how the $58,000 you would owe on a plain sale splits in the partial deal: a small slice paid today, the bulk pushed down the road.
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 have 45 calendar days to identify replacement candidates in writing, usually under the three-property rule, and 180 days to close. Those are hard deadlines with no weekend or holiday extensions, and the IRS does not grant do-overs. 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?
No. If the money lands in your bank account, even briefly, the exchange is dead and the whole gain is taxable. A qualified intermediary must hold the funds the entire time and use them to buy the replacement. This is the rule people most often break without realizing it.
What happens to the deferred tax if I never sell again?
You can keep exchanging for life, and at death the property generally receives a stepped-up basis to fair market value for your heirs. The deferred gain, including all the recapture you rolled forward, can effectively disappear. This swap-till-you-drop strategy is why 1031 is so central to long-term real estate wealth.
Does the calculator handle state tax?
It estimates federal only. Most states follow the federal deferral, but a few, including California with its clawback reporting for out-of-state replacements, treat exchanges differently. Confirm your state's position with a CPA before you assume the full benefit.