# 1031 Exchange Tax Deferral Calculator Calculate capital gains tax liability, depreciation recapture, and adjusted basis when deferring taxes through an IRS Section 1031 exchange. --- - **Canonical URL:** https://dothecalculation.com/calculators/1031-exchange-tax-calculator - **Category:** Real Estate & Property - **Publisher:** Do The Calculation (https://dothecalculation.com) - **Cost:** Free, no account or sign-up required - **Privacy:** Runs entirely in the browser; inputs are never sent to a server - **Methodology:** https://dothecalculation.com/methodology --- ## 1031 Exchange Tax Deferral Calculator Estimate capital gains tax liabilities, depreciation recapture, and the adjusted basis of replacement properties under IRS Section 1031. - Calculate taxable gain and depreciation recapture - Model tax deferred vs boot liabilities - Determine the adjusted basis of the replacement property ## IRS Section 1031 Tax Deferral Rules Under **IRS Section 1031**, real estate investors can defer paying capital gains taxes and depreciation recapture when selling an investment property, provided they reinvest the proceeds in a "like-kind" property. To defer 100% of the taxes, the investor must follow two primary rules: 1. **Reinvest all cash proceeds**: All net cash proceeds from the sale must be handled by a Qualified Intermediary (QI) and reinvested. 2. **Equal or greater value & debt**: The purchase price of the replacement property must be equal to or greater than the net sales price of the original property, and the new mortgage balance must equal or exceed the old one. The math is formulated as follows: $$\text{Adjusted Basis} = \text{Original Price} + \text{Improvements} - \text{Depreciation}$$ $$\text{Realized Gain} = \text{Net Sales Price} - \text{Adjusted Basis}$$ $$\text{Depreciation Recapture Gain} = \min(\text{Realized Gain}, \text{Depreciation})$$ $$\text{Capital Gains Portion} = \text{Realized Gain} - \text{Depreciation Recapture Gain}$$ If the replacement property costs less than the original property's net sales price, the difference is **boot**. Boot is taxable up to the total realized gain of the transaction. ## How to Use This Calculator Enter the original purchase price, capital improvements, and total depreciation claimed on the property you are selling to establish its adjusted basis. Then enter the gross sale price and sale expenses (broker commissions, closing costs) to calculate net proceeds, and the purchase price of the replacement property you plan to buy. Set your federal capital gains rate, depreciation recapture rate, and state tax rate to see how much tax is deferred, how much (if any) is due immediately on boot, and the carryover basis of the new property. ## Worked Example: Deferring Tax on a $300,000 Property Sale An investor bought a rental property for $150,000, added $20,000 in improvements, and claimed $30,000 in depreciation over the holding period — an adjusted basis of $140,000 ($150,000 + $20,000 − $30,000). They sell the property for $300,000, paying $18,000 in sale expenses, for net sales proceeds of $282,000. Realized gain is $142,000 ($282,000 − $140,000), split into $30,000 of depreciation recapture (taxed at 25% federal + 5% state = $9,000) and $112,000 of capital gain (taxed at 15% federal + 5% state = $22,400) — a total potential tax bill of $31,400 if the sale were not exchanged. If the investor reinvests the full $282,000 or more into a $350,000 replacement property under Section 1031, there is no boot and the entire $31,400 stays deferred; the replacement property's carryover basis is $208,000 ($350,000 new price minus the $142,000 deferred gain). But if the investor instead buys a cheaper $250,000 replacement property, $32,000 of the net proceeds is not reinvested — this is taxable boot. Tax is due on the lesser of the boot or the realized gain: here $32,000 of gain becomes taxable, generating a $9,400 tax bill ($9,000 of recapture tax plus $400 of capital gains tax) due in the year of the exchange, while the remaining $22,000 of gain stays deferred. ## Related Calculators Model transaction costs on both sides of the exchange with the [Closing Cost Estimator](/calculators/closing-cost-estimator), or evaluate the replacement property itself with the [Cap Rate Calculator](/calculators/cap-rate-market-calculator) or [Rental Property ROI Calculator](/calculators/rental-property-roi-calculator). If the replacement property is financed with a new loan, run the numbers through the [Mortgage Calculator](/calculators/mortgage-calculator). ## Frequently asked questions ### What is a 1031 exchange? A 1031 exchange allows real estate investors to defer paying capital gains taxes and depreciation recapture when selling an investment property by reinvesting the proceeds into a like-kind property. ### What does "like-kind" mean? Like-kind is a broad definition under the tax code. Any real estate held for productive use in a business or for investment qualifies (e.g., exchanging a duplex for a commercial strip mall or raw land). ### What is "boot" in a 1031 exchange? Boot is any non-like-kind property or cash received in the exchange (e.g., cash kept after the sale or a reduction in mortgage debt). Boot is taxable in the year of the exchange. ### What is the timeline for a 1031 exchange? You have 45 days from the date of the sale to identify replacement properties in writing, and 180 days to close on one of those identified properties. ### Who is a Qualified Intermediary (QI)? A QI is a neutral third party who holds the sales proceeds in escrow. If the seller takes possession of the cash at any point, the exchange is disqualified, and all taxes are due. ### How is depreciation recapture taxed? Depreciation recapture is taxed at a maximum rate of 25% at the federal level, plus any state taxes. It applies to the cumulative depreciation claimed (or claimable) during the ownership period. ### How does a 1031 exchange affect the basis of the new property? The tax is deferred, not eliminated. The adjusted basis of the replacement property is reduced by the deferred gain: New Basis = New Purchase Price - Deferred Gain. ### Can I perform a 1031 exchange on my primary residence? No, Section 1031 only applies to properties held for productive use in a trade, business, or for investment. Primary residences are governed by Section 121 exclusions. ### Can I do a reverse 1031 exchange? Yes, a reverse exchange allows you to acquire the replacement property first through an exchange accommodation titleholder (EAT) before selling your original property, subject to strict timelines. ### What is the "swap til you drop" strategy? This is an estate planning strategy where an investor continues to execute 1031 exchanges until they pass away. At death, their heirs receive a stepped-up basis to fair market value, permanently eliminating the deferred capital gains taxes. ## Related concepts - **Depreciation Recapture (Section 1250)** — The tax levied on the gain attributed to depreciation deductions previously claimed on a property. - **Qualified Intermediary (QI)** — An independent professional who facilitates 1031 exchanges by holding sales proceeds in escrow. - **Stepped-Up Basis** — The readjustment of an inherited asset's value to its fair market value at the date of death, eliminating accrued capital gains. ## Related guides - [House Flipping Guide: How to Calculate ARV, 70% Rule, and Profit Margin](https://dothecalculation.com/blog/property/house-flipping-guide) — Underwrite house flips with professional precision. Learn how to calculate after-repair value (ARV), maximum allowable offer (MAO), repair contingency, and financing drag. - [Airbnb ROI Guide: How to Calculate Cap Rate, Cash Flow, and Cash-on-Cash Return](https://dothecalculation.com/blog/property/airbnb-roi-guide) — Underwrite short-term rentals like a professional. Learn how to calculate cap rate, monthly net cash flow, and occupancy-driven returns using actual vacation rental math. ## Related calculators - [After Repair Value (ARV) Calculator](https://dothecalculation.com/calculators/after-repair-value-calculator) — Calculate ARV, the 70% rule maximum allowable offer, and projected flip profit from purchase price, repair budget, and selling costs. - [BRRRR ROI Calculator](https://dothecalculation.com/calculators/brrrr-calculator) — Evaluate Buy, Rehab, Rent, Refinance, Repeat investment deals by calculating cash left in the deal, equity created, and overall return on investment. - [House Flipping Calculator](https://dothecalculation.com/calculators/house-flipping-calculator) — Calculate house flipping profit potential, including maximum allowable offer, renovation budget, holding costs, and expected ROI for property flips. - [Rehab Budget & Renovation Estimator](https://dothecalculation.com/calculators/property-flipping-rehab-budget-calculator) — Itemize construction renovation budgets, material grade choices, and contingency buffers to plan rehab costs for property flipping projects. - [Broker & Agent Commission Split Calculator](https://dothecalculation.com/calculators/real-estate-agent-commission-calculator) — Calculate real estate listing and buying commissions and see how they split between agents and brokers on a home sale transaction. - [Seller Financing Amortization Calculator](https://dothecalculation.com/calculators/seller-financing-calculator) — Model owner-financed loan amortization schedules, balloon payments, and installment sale capital gains tax benefits for seller financing deals. --- _This calculator is designed for educational and planning purposes only. Real estate valuations, operating expenses, tax treatment (including 1031 exchanges and installment sales), mortgage interest rates, and loan underwriting criteria vary widely by market, property type, credit profile, and local regulations. Always consult a licensed real estate broker, CPA, tax attorney, or financial advisor before making investment decisions._ --- _Source: [Do The Calculation](https://dothecalculation.com/calculators/1031-exchange-tax-calculator). Quote freely with attribution and a link to this page._