1031 Exchange Calculator
Calculate the tax deferral from a 1031 like-kind exchange, including capital gains and depreciation recapture.
Results
Visualization
How It Works
A 1031 exchange (like-kind exchange) lets you defer capital gains and depreciation recapture taxes by reinvesting sale proceeds into a similar investment property. This is one of the most powerful tax strategies in real estate.
The Formula
Variables
- Adjusted Basis — Original cost minus depreciation taken
- Recapture — Previously deducted depreciation, taxed at 25% (Section 1250)
- Capital Gains — Gain above adjusted basis, taxed at 15-20% (long-term)
Worked Example
Sell for $400,000 (6% costs = $376,000 net). Bought for $250,000, $50,000 depreciation taken. Basis = $200,000. Gain = $176,000. Recapture tax = $50,000*25% = $12,500. Capital gains = $126,000*20% = $25,200. Total deferred = $37,700.
Practical Tips
- You have 45 days to identify replacement properties and 180 days to close.
- The replacement property must be equal or greater in value to defer ALL taxes.
- You can exchange into multiple properties (up to 3 identified, or any number under 200% rule).
- A qualified intermediary MUST hold the funds — you cannot touch the money.
- 1031 exchanges are 'tax deferred,' not 'tax free' — the tax bill transfers to the new property.
Frequently Asked Questions
What qualifies for a 1031 exchange?
Any investment or business real property can be exchanged for 'like-kind' property. This is broadly defined — an apartment building can be exchanged for raw land, a commercial building, or even a DST (Delaware Statutory Trust).
Can I 1031 exchange my primary residence?
No — only investment and business properties qualify. However, you can convert a rental to a primary residence (or vice versa) with proper planning and holding periods.
What are the deadlines?
45 days to identify replacement properties (in writing). 180 days to close on the replacement. These deadlines are strict and cannot be extended.
Do I need a qualified intermediary?
Yes — a QI must hold the sale proceeds. If you receive the money directly (even briefly), the exchange is disqualified. QI fees are typically $750-$1,500.
Can I do a 1031 exchange across state lines?
Yes — there are no geographic restrictions. However, some states may still tax the gain from the original property sale even if federal taxes are deferred.