Tax Deferral Strategy

1031 Exchange Calculator

Calculate your tax-deferred exchange. See how much you can save by deferring capital gains through a like-kind exchange.

Exchange Details

Enter your relinquished and replacement property info

Relinquished Property (Selling)

Tax Rates

Replacement Property (Buying)

What is a 1031 Exchange?

A 1031 exchange, named after Section 1031 of the IRS tax code, allows real estate investors to defer capital gains taxes when selling an investment property by reinvesting the proceeds into a "like-kind" replacement property. This powerful tax strategy has been used for decades to build wealth through real estate.

Key 1031 Exchange Rules

  • 45-Day Rule: you must identify potential replacement properties within 45 days of selling
  • 180-Day Rule: you must close on the replacement property within 180 days
  • Equal or Greater Value: the replacement must be of equal or greater value to defer all tax
  • Qualified Intermediary: funds must be held by a qualified intermediary during the exchange

Worked example

Suppose you sell a rental for 500,000 dollars that you bought for 300,000 dollars and have depreciated by 60,000 dollars, giving an adjusted basis of 240,000 dollars and a gain of about 260,000 dollars. At a combined federal capital gains and depreciation recapture rate near 20 to 25 percent, selling outright could cost 55,000 dollars or more in tax. In a 1031 exchange you reinvest the full net proceeds into a replacement of equal or greater value, defer that entire bill, and keep the whole amount working in the next property. This calculator estimates that deferred tax and the replacement value you need to hit.

How investors use 1031 exchanges

Investors chain 1031 exchanges to trade up over time: a single rental becomes a duplex, then a small apartment building, without paying tax at each step. It is also used to consolidate scattered properties, relocate equity to a stronger market, or shift from management-heavy holdings into more passive ones. Because the deadlines are strict and the paperwork is unforgiving, most investors line up a qualified intermediary and identify targets before the sale closes. This tool is for planning, not tax advice, so confirm the details with a qualified professional.

Frequently asked questions

What is a 1031 exchange in real estate?

A 1031 exchange, named after Section 1031 of the tax code, lets a real estate investor sell an investment property and defer capital gains tax by reinvesting the proceeds into a like-kind replacement property. The tax is not erased, it is deferred, and it can be deferred again on the next exchange. Investors use it to move equity into larger or better-located properties without losing a chunk to taxes at each step.

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

After you sell the relinquished property, you have 45 calendar days to identify potential replacement properties in writing and 180 calendar days to close on one of them. Both clocks start on the sale date and run at the same time, so the 180-day window includes the first 45 days. Missing either deadline generally disqualifies the exchange and makes the gain taxable.

What is boot in a 1031 exchange?

Boot is any value you receive in the exchange that is not like-kind property, such as cash left over or a reduction in mortgage debt. Boot is taxable up to the amount of your gain. To defer all tax you generally must buy a replacement of equal or greater value and reinvest all of the net proceeds, which is why this calculator flags the replacement value you need to hit.

Do I need a qualified intermediary for a 1031 exchange?

Yes. The rules require a qualified intermediary to hold the sale proceeds between the sale and the purchase. If you take possession of the funds, even briefly, the exchange fails and the gain becomes taxable. You should engage the intermediary before you close on the sale, since the arrangement must be in place at that point.

What types of property qualify as like-kind?

For real estate, like-kind is interpreted broadly: most investment or business real property qualifies to exchange for other investment real property. You can trade a rental house for an apartment building, raw land for a retail strip, or one commercial building for several. Personal residences and property held mainly for resale, such as a flip, generally do not qualify.

Related calculators

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