1031 Exchange Calculator

Section 1031 of the Internal Revenue Code lets investors defer federal capital gains tax (and the 25% depreciation recapture) when they sell real property held for investment or business use and reinvest the proceeds into another like-kind investment property. The gain is not erased; it rolls forward into the basis of the replacement property and only comes due when that replacement is sold in a fully taxable transaction. Since the Tax Cuts and Jobs Act of 2017, 1031 only applies to real estate. Personal property exchanges (equipment, vehicles, collectibles, crypto) no longer qualify.

The 45-day identification rule requires you to identify potential replacement properties in writing within 45 calendar days of closing the sale of the relinquished property. The 180-day completion rule gives you a total of 180 calendar days from that same closing date to actually close on the replacement. Both windows run concurrently (the 45-day window is inside the 180-day window) and both are strict. Weekends and holidays are counted, the IRS does not grant extensions, and a missed deadline by even one day disqualifies the entire exchange and triggers immediate tax on the full realized gain.

A Qualified Intermediary (QI), also called an Accommodator or Exchange Facilitator, is a neutral third party that holds the sale proceeds between closings so you never take constructive receipt of the cash. If you, your real estate agent, your attorney, your accountant, or any related party touches the funds at any point, the IRS treats the transaction as a fully taxable sale and the 1031 deferral collapses. The QI must be engaged in writing before the relinquished property closes, prepares the exchange documents, holds the proceeds in a segregated escrow account, and wires them to the replacement closing. QI fees typically run $750 to $1,500 for a standard exchange.

Boot is any non-like-kind value you receive in the exchange, and it makes the deferral partial instead of total. The two common forms are cash boot (you pocket cash at closing, often because the replacement property cost less than the relinquished sale) and mortgage boot (the new mortgage is smaller than the old one, so the debt relief is treated as money received). Recognized gain equals the lesser of your realized gain or the boot received, and that recognized portion is taxed at the regular federal capital gains rate plus any state rate. The rest of the gain stays deferred. To avoid all boot, the replacement must equal or exceed the relinquished property on both purchase price and debt level.

When you sell investment real estate that you have been depreciating, the IRS recaptures the depreciation you claimed at a special 25% federal rate (officially called the unrecaptured Section 1250 gain rate), which is higher than the 15% or 20% long-term capital gains rate that applies to the price-appreciation portion of the profit. In a fully successful 1031 exchange, both the capital gain and the recapture are deferred together. If you trigger boot, the recognized gain is taxed first as recapture (up to your accumulated depreciation amount, at 25%) and only the remainder is taxed at the capital gains rate. That makes recapture especially expensive on properties you have held and depreciated for many years.