1031 Exchange Calculator

What Is a 1031 Exchange?

A 1031 exchange, named after Section 1031 of the Internal Revenue Code, allows real estate investors to sell an investment property and reinvest the proceeds into a like-kind replacement property while deferring capital gains tax. Instead of paying tax on the gain in the year of sale, the tax liability carries forward into the new property's cost basis.

This calculator estimates the capital gains tax you can defer, the boot (taxable portion), depreciation recapture, and the carryover basis of your replacement property. It also compares selling outright versus exchanging side by side.

How the 1031 Exchange Calculation Works

The calculation follows five steps from your original basis through to the tax you defer. Each step uses standard real estate tax formulas.

Adjusted Basis = Purchase Price + Capital Improvements - Accumulated Depreciation
Realized Gain = (Sale Price - Selling Costs) - Adjusted Basis
Boot = Cash Boot + Mortgage Boot (any value received that is not like-kind property)
Recognized Gain = the lesser of Realized Gain or total Boot (this is taxable now)
Deferred Gain = Realized Gain - Recognized Gain
Carryover Basis = Replacement Price - Deferred Gain

What Is Boot in a 1031 Exchange?

Boot is any value you receive in the exchange that is not like-kind property. It is taxable in the year of the exchange. There are two types:

Cash Boot: Sale equity you keep instead of reinvesting into the replacement property.
Mortgage Boot (Debt Relief): When the loan you pay off on the old property exceeds the new loan on the replacement property. The difference is treated as a benefit received.

To defer 100% of your gain, buy a replacement of equal or greater value, reinvest all equity, and carry equal or greater debt.

The 45-Day and 180-Day Rules

1031 exchanges run on strict deadlines that begin when your sale closes:

45-Day Identification Period: You have 45 calendar days to identify potential replacement properties in writing to your qualified intermediary.
180-Day Exchange Period: You must close on the replacement property within 180 calendar days (or by your tax return due date, whichever comes first).

Both periods run concurrently and cannot be extended. Missing either deadline disqualifies the exchange.

Depreciation Recapture and the 1031 Exchange

When you own a rental property, you deduct depreciation each year, lowering your taxable income but also lowering your cost basis. On a normal sale, accumulated depreciation is recaptured and taxed at up to 25% (unrecaptured Section 1250 gain). A fully deferred 1031 exchange postpones this recapture along with the rest of the gain.

Selling Outright vs. Exchanging

The calculator shows a side-by-side comparison. Selling outright means paying depreciation recapture, federal capital gains tax, the 3.8% Net Investment Income Tax (if applicable), and state tax all in the year of sale. A 1031 exchange keeps that money invested and compounding.

If you are evaluating investment property strategies, our capital gains calculator shows the full tax impact of a non-exchange sale, while the depreciation calculator helps you track annual deductions that lower your adjusted basis. For broader investment analysis, the rental property calculator and real estate calculator offer complementary tools for evaluating cash flow, appreciation, and overall return.

Frequently Asked Questions

What is a 1031 exchange?

A 1031 exchange is a tax deferral strategy under Section 1031 of the U.S. tax code. It lets real estate investors sell an investment property and reinvest the proceeds into a like-kind replacement property without paying capital gains tax at the time of sale. The tax is deferred, not eliminated, because the gain carries forward into the new property's basis.

How much capital gains tax can I defer with a 1031 exchange?

If you reinvest all your equity and buy a replacement of equal or greater value with equal or greater debt, you can defer 100% of the capital gains tax, including depreciation recapture, the 3.8% NIIT, and state tax. If you trade down or take cash out, you defer tax on the gain above the boot amount.

What is boot in a 1031 exchange?

Boot is any value received that is not like-kind property. Cash boot is sale equity you keep instead of reinvesting. Mortgage boot is debt relief when your new loan is smaller than the one paid off. Boot is taxable in the year of the exchange up to the amount of your realized gain.

What are the 45-day and 180-day rules?

After closing on the sale, you have 45 calendar days to identify replacement properties in writing and 180 calendar days to complete the purchase. Both clocks start on the sale closing date, run concurrently, and cannot be extended.

Is depreciation recapture deferred in a 1031 exchange?

Yes. A fully deferred 1031 exchange postpones depreciation recapture (Section 1250 gain taxed at up to 25%) along with the rest of the capital gain. The recapture liability carries forward into the replacement property.

What is carryover basis?

The replacement property takes a carryover cost basis equal to its purchase price minus the deferred gain. A lower basis means larger future depreciation recapture and capital gain when the property is eventually sold without another exchange.

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