1031 Exchange Calculator

A 1031 exchange (named after Section 1031 of the U.S. Internal Revenue Code) allows real estate investors to defer capital gains taxes when selling an investment property — as long as they reinvest the proceeds into a “like-kind” replacement property within strict time limits.

Core formula: Boot Received = Sale Price − Replacement Property Price − Exchange Costs Taxable Gain = Boot Received × Capital Gains Tax Rate Deferred Gain = Total Realized Gain − Taxable Gain

What each variable means:

• Boot: any cash or non-like-kind property received during the exchange. Boot is taxable even in a 1031 exchange.
• Realized Gain: Sale Price minus your original Adjusted Basis (purchase price + improvements − depreciation).
• Adjusted Basis: what the IRS considers you paid for the property after accounting for depreciation and capital improvements.
• Like-Kind Property: virtually any U.S. investment real estate qualifies: residential rentals, commercial buildings, land, industrial warehouses.

Critical deadlines:

• 45-Day Identification Rule: you must identify replacement properties within 45 days of selling your relinquished property.
• 180-Day Exchange Rule: you must close on the replacement property within 180 days of the sale.

Worked example: You sell a rental property for $600,000. Your adjusted basis is $250,000, giving a realized gain of $350,000. You reinvest into a $575,000 replacement property and pay $10,000 in exchange fees. Your boot = $600,000 − $575,000 − $10,000 = $15,000 taxable. The remaining $335,000 gain is fully deferred.

Reference tax rates (2024):

• Long-term capital gains: 0%, 15%, or 20% depending on income.
• Depreciation recapture: taxed at up to 25%.
• Net Investment Income Tax (NIIT): additional 3.8% may apply.

A qualified intermediary (QI) must hold your exchange funds — you cannot touch the money directly or the exchange is disqualified.