1031 Exchange Tax Calculator
A Section 1031 Exchange allows you to sell an investment property and reinvest the proceeds into a new one without paying capital gains taxes today. Your calculator tells you exactly how much tax you're deferring.
1031 Exchange vs. Standard Sale: The Math
Here's why real estate investors love 1031 exchanges. On a $1M property sale with $500k gain:
Realized Gain vs. Recognized Gain: What's the Difference?
This is where most people get confused. The IRS uses two terms:
The 'Boot' Trap: Where Most Investors Mess Up
Boot is the IRS term for cash or other property you receive in the exchange. If you take Boot, you pay taxes on it. Boot comes from two sources:
The IRS 1031 Timing Rules (Strict!)
Miss these deadlines and your entire exchange is void. No exceptions.
'Like-Kind' Property: What Can You Exchange?
Since the Tax Cuts and Jobs Act of 2017, Section 1031 exchanges are limited to real property. The good news: most real estate is like-kind to other real estate.
Adjusted Basis and Depreciation Recapture
Your 'Adjusted Basis' is what the IRS considers your investment in the property. It affects your realized gain.
The 'Swap 'til You Drop' Strategy and Step-Up in Basis
Real estate investors use 1031 exchanges repeatedly. What happens to your deferred taxes?
Capital Gains Tax Rates and NIIT (Net Investment Income Tax)
Your tax rate depends on income and filing status. High earners pay extra.
1031 Exchange FAQ
Q:Can I use a 1031 exchange for my primary residence?
No. Section 1031 is strictly for properties held for productive use in a trade or business or for investment. Your primary home falls under Section 121 (Primary Residence Exclusion) and uses a different tax rule ($250k/$500k exclusion for married couples).
Q:What happens to the deferred taxes eventually?
If you keep exchanging until you die, your heirs receive a 'Step-up in Basis.' They inherit at fair market value on your death date, and all your deferred gains disappear. This is the 'Swap 'til you drop' strategy. Alternatively, you can eventually 'cash out' and pay taxes, but most investors choose to keep exchanging.
Q:What is 'Like-Kind' property in 2026?
Most real estate is like-kind to other real estate. An apartment building is like-kind to a single-family rental, office space, retail mall, or raw land. However, real estate is NOT like-kind to vehicles, equipment, cryptocurrency, or international property.
Q:What is 'Boot' and why does it trigger taxes?
Boot is any cash or property you receive from the exchange. There are two types: (1) Cash Boot (cash you pocket), and (2) Mortgage Boot (if your new debt is lower than your old debt). You are taxed on whichever is larger. To avoid taxes, reinvest 100% of proceeds and ensure your new mortgage is at least as large as your old one.
Q:What happens if I miss the 45-day or 180-day deadline?
Your entire 1031 exchange fails, and you owe full capital gains tax (and depreciation recapture) on the sale immediately. There are no extensions from the IRS. Plan carefully and use a Qualified Intermediary to track deadlines.
Q:What is a Qualified Intermediary and why do I need one?
A Qualified Intermediary (QI) is a neutral third party that holds the sale proceeds. If you touch the money (it hits your personal bank account), the exchange fails and you owe full taxes. A QI ensures compliance and protects your deferral.
Q:Can I do multiple 1031 exchanges back-to-back?
Yes. You can chain 1031 exchanges indefinitely. There is no limit on the number of exchanges you can do. This is why wealthy investors keep exchanging—they build massive real estate portfolios tax-free. When they die, heirs get the Step-up in Basis and inherit tax-free.