1031 Exchange Calculator

How a 1031 exchange works

A 1031 exchange lets you defer capital gains tax when you sell investment real estate and buy other investment real estate. A qualified intermediary must hold the sale proceeds.

The formula

Taxable boot = cash received + reduction in debt not replaced

Worked example

To defer all tax, buy replacement property of equal or greater value and reinvest all of the net proceeds. For example, if you sell for $500,000 and buy a replacement for $450,000, the $50,000 you do not reinvest is boot and is taxable.

You have 45 days from the sale to identify replacement property and 180 days to close on it, or until the due date of your tax return for that year if that comes sooner. Both periods start on the sale date.

How to use this calculator

For the property you are selling, enter the sale price, the selling costs, the original cost plus improvements and the depreciation taken. Then enter the replacement property price, choose a federal capital gains rate of 15% or 20%, and add your state tax rate. The 1031 exchange calculator estimates the gain on the sale, the tax if you sold without an exchange, the tax deferred, any boot and the tax due on it now, and the replacement price you need for full deferral.

What the result means

The deferred tax is an estimate of what you would owe on a normal sale and do not owe now. It is postponed, not cancelled. Boot is the part of the deal that falls outside the exchange. Zero boot means the whole gain is deferred. Any boot is taxable in the year of the sale.

More examples

Boot from buying a cheaper property

These use the $500,000 sale from the worked example.

Boot from a smaller loan

Suppose you sell for $500,000 with a $200,000 mortgage, leaving $300,000 of proceeds before costs. You buy a $460,000 replacement using all $300,000 and a new $160,000 loan. You received no cash, but your debt fell by $40,000 and was not replaced. Under the formula, boot is $0 + $40,000 = $40,000.

How much tax is deferred

Suppose the $500,000 sale produces a $200,000 gain, and $60,000 of that is depreciation you claimed. Depreciation is taxed at up to 25%, so up to $15,000. If the other $140,000 is taxed at the 15% long-term rate, that is $21,000. A full exchange defers about $36,000 of federal tax in this example. Long-term rates are 0%, 15% or 20% depending on income, and some sellers also owe the 3.8% net investment income tax.

What changes the result

• Replacement price. Buying for less than you sold for creates boot.
• Cash taken out. Any proceeds you keep are boot.
• Debt. A smaller loan on the replacement can create boot even when you take no cash.
• Your gain and tax rate. A larger gain or a higher rate means more tax deferred.

Common mistakes

• Receiving the sale proceeds yourself instead of having a qualified intermediary hold them.
• Missing the 45-day identification deadline.
• Counting the 180 days from the identification date. Both periods start on the sale date.
• Trying to exchange a main home or property that is not real estate. Only real property held for investment or business qualifies.
• Buying a cheaper replacement and expecting full deferral.

Related calculators

The rental property depreciation calculator shows how much depreciation builds up over the years you own a rental. Compare replacement properties with the cap rate calculator. If you are selling a main home instead, see the capital gains tax on home sale calculator. Results are estimates. Ask a tax professional before you sell.

Frequently asked questions