1031 Exchange Calculator

The 1031 Exchange Calculator estimates how much capital gains tax you can defer by rolling the proceeds from one investment property into another through a Section 1031 like-kind exchange. It works out your adjusted cost basis, your realized gain, any taxable boot, the gain that is recognized now versus deferred, the blended tax you postpone, and the carryover cost basis that follows you into the replacement property. A 1031 exchange does not erase your tax — it defers it — so understanding each number helps you plan the trade correctly.

What Is a 1031 Exchange?

A 1031 exchange (named after Internal Revenue Code Section 1031) lets a real estate investor sell a business or investment property and reinvest the proceeds into a like-kind replacement property without paying capital gains tax at the time of the sale. Almost any U.S. real property held for investment or business use is "like-kind" to any other — an apartment building can be exchanged for raw land, a rental condo, or a commercial unit. The deferred gain is carried into the new property's basis and is only taxed if and when you sell without doing another exchange.

1031 Exchange Formula

The calculation moves through five connected steps, from your original basis all the way to the tax you defer:

What Is Boot?

Boot is any value you receive in the exchange that is not like-kind property. It is taxable in the year of the exchange and comes in two forms:

• Cash boot — sale equity you keep in your pocket instead of reinvesting it into the replacement property.
• Mortgage boot (debt relief) — the amount by which the loan you paid off exceeds the new loan you take on. Reducing your debt counts as a benefit received, even if no cash changes hands. You can offset mortgage boot by adding fresh cash to the deal, but you cannot offset cash boot with new debt.

To defer 100% of your gain, the classic rule of thumb is: buy a replacement of equal or greater value, reinvest all of your equity, and carry equal or greater debt. Any shortfall becomes boot.

The 45-Day and 180-Day Rules

1031 exchanges run on a strict, unforgiving calendar that begins the day your sale closes:

Both periods run concurrently, count every calendar day including weekends and holidays, and cannot be extended. Missing either deadline disqualifies the exchange and makes the entire gain taxable. The funds must also be held by a qualified intermediary — you cannot touch the sale proceeds yourself.

Depreciation Recapture and the 1031 Exchange

When you own a rental property you deduct depreciation every year, which lowers your taxable income but also lowers your cost basis. On a normal sale, that accumulated depreciation is "recaptured" and taxed at a federal rate of up to 25% (unrecaptured Section 1250 gain). A fully deferred 1031 exchange postpones this recapture along with the rest of the gain, which is often the single largest tax saving for long-term landlords. This calculator separates the recapture portion of your gain from the long-term capital gain portion so you can see both.

Selling Outright vs Exchanging

The calculator shows a side-by-side comparison of the cash you keep working for you under each path. Selling outright means paying depreciation recapture, federal capital gains tax (0%, 15% or 20%), the 3.8% Net Investment Income Tax where it applies, and any state tax — all in the year of the sale. A 1031 exchange keeps that money invested in real estate and compounding, which is the core wealth-building appeal of the strategy.

What Affects Your 1031 Exchange Tax Deferral?

How to Use This Calculator

1. Enter the sale details: the sale price, selling costs, original purchase price, capital improvements, accumulated depreciation, and the mortgage being paid off on the property you are relinquishing.
2. Enter the replacement property: its purchase price and the new mortgage you will carry on it.
3. Set your tax assumptions: pick your federal capital gains rate, add a state tax rate if relevant, and tick the 3.8% NIIT if it applies to you.
4. Add a closing date (optional): enter your sale closing date to map the 45-day and 180-day deadlines.
5. Click Calculate: review your realized gain, boot, recognized and deferred gain, the tax deferred, and the new property's carryover basis.

Frequently Asked Questions

What is a 1031 exchange?

A 1031 exchange, named after Section 1031 of the U.S. tax code, lets a real estate investor sell an investment property and reinvest the proceeds into a like-kind replacement property while deferring the capital gains tax that would normally be due. The tax is postponed, not erased, because the deferred gain carries over into a lower cost basis on the new property.

What is boot in a 1031 exchange?

Boot is any value you receive in the exchange that is not like-kind property. The two main types are cash boot, which is sale equity you keep instead of reinvesting, and mortgage boot, which is debt relief when your new loan is smaller than the one paid off. Boot is taxable in the year of the exchange, so the recognized gain equals the lesser of your realized gain or the total boot received.

How much capital gains tax can a 1031 exchange defer?

If you reinvest all of your equity and buy a replacement property 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% Net Investment Income Tax and state tax. If you trade down or take cash out, you defer the tax on the gain above the boot and pay tax on the recognized gain now.

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

After closing on the sale of the relinquished property you have 45 calendar days to formally identify potential replacement properties in writing, and a total of 180 calendar days to complete the purchase of the replacement property. Both clocks start on the sale closing date, run concurrently, and include weekends and holidays with no extensions.

Is depreciation recapture deferred in a 1031 exchange?

Yes. A fully deferred 1031 exchange postpones unrecaptured Section 1250 depreciation, which is otherwise taxed at a federal rate of up to 25%, along with the rest of the capital gain. The recapture liability carries forward into the replacement property and is only triggered if you later sell without doing another exchange.

What is carryover basis in a 1031 exchange?

The replacement property takes a substituted, or carryover, cost basis equal to its purchase price minus the gain you deferred. A lower basis means larger future depreciation recapture and capital gain when the property is eventually sold outright, which is why a 1031 exchange defers tax rather than eliminating it.

Disclaimer: This calculator provides estimates for educational and planning purposes only and is not tax or legal advice. 1031 exchanges have strict requirements and your actual tax depends on your full financial situation. Consult a qualified tax advisor and a qualified intermediary before completing an exchange.

Additional Resources

• Internal Revenue Code Section 1031 - Wikipedia
• Like-Kind Exchanges Real Estate Tax Tips - IRS