What is a 1031 exchange?

A 1031 exchange (IRC Section 1031) allows real estate investors to defer capital gains tax and depreciation recapture by exchanging investment property for "like-kind" replacement property. Both properties must be held for investment or business use. The strategy lets investors roll the entire pre-tax amount into the next property, preserving wealth that would otherwise go to taxes.

What are the 1031 exchange deadlines?

Two hard deadlines: (1) 45 days from sale closing to formally identify replacement properties (in writing, to qualified intermediary), and (2) 180 days from sale closing to close on the replacement property. Neither deadline can be extended. The qualified intermediary must hold all funds during this period.

How much must I reinvest to defer all taxes?

To fully defer all gain and depreciation recapture, you must (1) buy replacement property of equal or greater value than the sale price, (2) take on equal or greater mortgage debt on the replacement, and (3) reinvest all cash proceeds. Any shortfall is "boot" that's taxable. Partial 1031s are allowed — partial deferral still saves substantial tax.

What property qualifies as "like-kind"?

All U.S. real estate held for investment or business use qualifies for exchange with any other U.S. real estate held for investment or business use. A single-family rental can be exchanged for a commercial building, raw land for an apartment complex, etc. NOT eligible: primary residences, "dealer property" (held for flipping), and foreign real estate.

Does the deferred tax ever come due?

It comes due when you eventually sell without exchanging. BUT: if you hold the property until death, heirs receive stepped-up basis to fair market value at death — eliminating ALL deferred gain. The "1031 until you die" strategy permanently escapes the deferred tax. This is one of the most powerful tax strategies in the U.S. code for real estate investors.

1031 Exchange Calculator

Estimate the capital gains tax you can defer with a 1031 exchange and determine how much you need to reinvest in replacement property. Compare the tax savings of exchanging versus selling outright.

IRC Section 1031 allows real estate investors to defer capital gains tax (and depreciation recapture) by exchanging investment property for "like-kind" replacement property. Instead of selling, paying tax, and reinvesting what's left, the 1031 exchange lets investors roll the entire pre-tax amount into the next property — preserving wealth that would otherwise go to taxes and compounding it across multiple property transactions over a career.

The tax deferral can be substantial. On a $500K sale with $200K of taxable gain and $80K of depreciation recapture, a typical investor pays $40K-$80K in combined federal and state taxes. A 1031 exchange defers ALL of that. Over a career involving multiple exchanges, the cumulative tax savings (which keep working as invested capital) can easily reach hundreds of thousands of dollars. Some investors execute "1031 until you die" strategies — exchanging properties throughout life, then heirs receive stepped-up basis at death, eliminating the deferred tax permanently.

This calculator estimates the deferrable tax on a planned 1031 exchange and shows the reinvestment requirements to defer all tax. Use it to plan exchange strategy, understand the financial benefit vs. selling outright, and ensure you reinvest enough to fully defer tax. 1031 exchanges have strict deadlines and qualification requirements — work with a qualified intermediary and tax advisor throughout the process. Mistakes in 1031 execution can disqualify the exchange and trigger all the tax you were trying to defer.

Inputs

Property Sale Price

Original Purchase Price

Capital Improvements

Accumulated Depreciation

Selling Expenses

Mortgage Balance

Capital Gains Tax Rate (%)

Depreciation Recapture Rate (%)

State Tax Rate (%)

Results

Tax Savings (Deferred)

$54,000

Realized Gain

$200,000

Min. Reinvestment

$470,000

Net Proceeds (with 1031)

$270,000

Net Proceeds Comparison

Tax Breakdown (Without Exchange)

Exchange Analysis

Item	Amount
Sale Price	$500,000.00
Selling Expenses	$-30,000.00
Net Sale Price	$470,000.00
Adjusted Basis	$270,000.00
Realized Gain	$200,000.00
Capital Gains Tax	$24,000.00
Depreciation Recapture Tax	$20,000.00
State Tax	$10,000.00
Total Tax Deferred	$54,000.00

Last updated: May 27, 2026Reviewed by the CalcMountain editorial team

Formula

Adjusted basis at sale: Adjusted Basis = Original Purchase Price + Capital Improvements − Accumulated Depreciation Realized gain: Realized Gain = Sale Price − Selling Expenses − Adjusted Basis Gain breakdown for tax: Depreciation Recapture (taxed up to 25%): Accumulated Depreciation Capital Gain (taxed at LTCG rates 0/15/20%): Realized Gain − Recapture Tax without exchange (sell outright): Federal Tax = (Recapture × 25%) + (Capital Gain × Capital Gains Rate) State Tax = Realized Gain × State Rate Total Tax = Federal + State Net proceeds (sell outright): Net Proceeds = Sale Price − Selling Expenses − Mortgage Balance − Total Tax Reinvestment requirements for full tax deferral via 1031: Buy replacement property of EQUAL OR GREATER value (sale price) Take on EQUAL OR GREATER mortgage debt on replacement Use ALL net proceeds (after selling expenses and mortgage payoff) If you don't meet these requirements, the shortfall (called "boot") is taxable. Boot calculation: Cash Boot = (Sale Price − Selling Expenses − Mortgage) − Cash used in replacement Mortgage Boot = Old Mortgage − New Mortgage (if new mortgage is less) Total Boot = Cash Boot + Mortgage Boot (positive = taxable) Tax on boot: Taxable as Recapture first (until recapture amount exhausted), then as capital gain. Example: $500K sale, $300K original, $50K improvements, $80K depreciation, $30K selling expenses, $200K mortgage, 20% LTCG, 25% recapture, 5% state. Adjusted basis: $300K + $50K − $80K = $270K Realized gain: $500K − $30K − $270K = $200K Recapture portion: $80K (taxed at 25%) Capital gain portion: $200K − $80K = $120K (taxed at 20%) Tax if sold outright: Federal: $80K × 25% + $120K × 20% = $20K + $24K = $44K State: $200K × 5% = $10K Total tax: $54K Net proceeds if sold: $500K − $30K − $200K − $54K = $216K To defer all tax via 1031: Buy replacement property worth $500K+ Take mortgage of $200K+ on replacement Use the full $216K-equivalent equity in the new property Effective benefit: $54K of tax deferred. That money continues to compound as invested capital. Over 20 years at 7% return, the deferred tax grows to about $209K — a $155K increase from the deferral.

How to use this calculator

Enter the planned sale price and selling expenses (commission, closing costs).
Enter the original purchase price.
Enter capital improvements (renovations, additions that added value over the years).
Enter accumulated depreciation. For rental property, depreciation accumulates each year of ownership at 1/27.5 of building basis (residential) or 1/39 (commercial).
Enter current mortgage balance to be paid off at sale.
Enter your capital gains tax rate. LTCG rates 0/15/20% based on income; 20% for most high-income investors.
Enter depreciation recapture rate (25% federal max; some investors lower).
Enter state tax rate.
Review the tax that would be due on outright sale vs. fully deferred via 1031.
Note the reinvestment requirements: replacement property must be equal or greater value AND equal or greater mortgage debt AND all cash must be reinvested.
For implementation: hire a qualified intermediary (QI) BEFORE closing on the sale. The QI holds the funds during the 45/180 day deadlines.

Worked examples

Typical landlord upsize

Selling $400K duplex (bought $250K, $30K improvements, $50K depreciation). $20K selling costs. $150K mortgage. Adjusted basis: $230K. Gain: $150K. Recapture: $50K. Capital gain: $100K. Tax if sold: $50K × 25% + $100K × 20% + $150K × 5% state = $40K Net proceeds if sold: $400K − $20K − $150K − $40K = $190K 1031 into $700K replacement (larger duplex): Must take $150K+ mortgage on new property. Net equity contribution: $190K. All $40K of tax deferred. Over 20 years at 6% return, the deferred $40K grows to ~$128K — a $88K wealth increase from the deferral alone.

Long-time investor with substantial gain

Selling $1.5M property (bought $400K 25 years ago, $200K improvements, $300K depreciation). $90K selling costs. $200K mortgage. Adjusted basis: $300K. Gain: $1,110,000. Recapture: $300K. Capital gain: $810K. Tax if sold: $300K × 25% + $810K × 20% + $1.11M × 6% state = $315,600 Massive tax bill. 1031 into $1.5M+ replacement defers all of it. Continuing to 1031 throughout life and dying with the property: heirs receive stepped-up basis to $1.5M at death, eliminating ALL the deferred gain. The tax is forever escaped, not just deferred. This is the "1031 until you die" strategy.

Reverse 1031 or imperfect exchange

Same scenario, but replacement property only $1.2M (downsizing). Mortgage $300K (more than original $200K). Cash boot: $1.5M − $90K − $200K − $1.2M = $10K boot Mortgage boot: $200K original − $300K new = -$100K (no boot, increased mortgage) Taxable boot: $10K (taxed as recapture first → $10K × 25% = $2,500 federal + state) Vs. selling outright would have been $315K tax bill. Partial deferral still saves $310K+ of tax. 1031s don't have to be perfect to provide huge benefit.

When to use this calculator

Use this calculator any time you're considering selling investment property — to understand whether a 1031 exchange makes sense vs. selling outright. The decision depends on: planned reinvestment (do you have a clear replacement property strategy?), your time horizon (1031 makes most sense for continued real estate investors), and your tax bracket (higher bracket = bigger tax deferral benefit).

Pair with: rental-property calculator, capital-gains-tax calculator, real-estate-commission calculator (selling costs), and seller-closing-costs calculator. For comprehensive real estate investor analysis.

Critical 1031 rules:

1. **45-day identification.** From the closing date of the sale, you have 45 days to formally identify potential replacement properties (in writing, to the qualified intermediary). The "3-property rule" lets you identify 3 properties of any value; the "200% rule" lets you identify more if total value doesn't exceed 200% of sale price.

2. **180-day completion.** You have 180 days from the sale to close on the replacement property.

3. **Qualified intermediary required.** The QI holds the funds during the exchange period. If you touch the funds, the exchange is disqualified.

4. **Like-kind requirement.** Real property for real property. All U.S. investment real estate qualifies for exchange with any other U.S. investment real estate (single family rental for commercial building, etc.). NOT eligible: primary residences, dealer property (flips), foreign property.

5. **Reverse exchange.** You can buy replacement first, then sell existing — but the structure is much more complex and requires "parked" property held by an accommodator.

6. **Step-up at death.** Heirs receive property at fair market value (basis stepped up), eliminating all deferred gain. This is what makes "1031 until you die" so powerful as a wealth-building strategy.

Common mistakes to avoid

Touching the funds. If the seller receives the sale proceeds (even briefly), the exchange is disqualified. Qualified intermediary must hold all funds.
Missing the 45/180 day deadlines. Hard deadlines. No extensions for COVID, hurricanes, contract negotiations. Plan the timeline carefully.
Downsizing without paying tax. If replacement property is smaller (less value or less debt), the difference is taxable boot. Plan for this.
Forgetting state tax. Most states follow federal 1031 treatment, but some (most notably California through 2017) have differences. Verify state treatment.
Not planning for eventual sale. Deferred tax compounds. A 1031 chain over 20 years can accumulate enormous deferred tax liability. Plan strategy: either continue 1031s indefinitely, plan for stepped-up basis at death, or accept eventual tax bill.
DIY 1031 execution. The rules are detailed and the penalties for missteps (disqualification = all tax due) are severe. Hire experienced QI and tax advisor.

Frequently Asked Questions

Sources & further reading

Like-Kind Exchanges Under IRC §1031 — U.S. Internal Revenue Service
Publication 544 — Sales and Other Dispositions of Assets — U.S. Internal Revenue Service
Form 8824 — Like-Kind Exchanges — U.S. Internal Revenue Service

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