Real Estate & Investing
1031 Exchange Calculator
Estimate the capital gain on a sale, the tax a 1031 exchange would defer, and the minimum replacement price needed for full deferral.
Calculation inputs
Enter the original basis details alongside the sale and tax rates.
Results
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Complete the fields and select Calculate to show results here.
Consult a Qualified Intermediary and CPA before executing a 1031 exchange.
About this calculator
This calculator estimates the capital gain on a property sale, the tax that a 1031 like-kind exchange would defer, and the minimum replacement property price needed for full deferral. It's designed for real estate investors weighing whether to pursue an exchange instead of a straight taxable sale.
How the calculation works
- Adjusted basis = original purchase price + improvements − depreciation taken
- Capital gain = sale price − selling costs − adjusted basis
- Tax deferred = (depreciation portion × recapture rate) + (remaining gain × (federal + state rate))
- Minimum replacement price = sale price − selling costs
Notes and assumptions
A like-kind exchange defers tax rather than eliminating it; the deferred gain carries into the replacement property's basis.
Strict deadlines apply: 45 days to identify replacement property and 180 days to close.
How it works in plain English
The calculator first finds the adjusted cost basis by adding improvements to the original purchase price and subtracting any depreciation already taken. Net sale proceeds are the sale price minus selling costs, and total capital gain is net sale proceeds minus adjusted basis.
Because depreciation recapture is taxed differently than long-term capital gains, the tool splits the gain into a recapture portion, up to the amount of depreciation taken, and a remaining capital gain portion. The recapture portion is taxed at the recapture rate entered, while the remaining gain is taxed at the combined federal and state capital gains rate.
Adding the recapture tax and capital gains tax together shows the total tax that a 1031 exchange would defer if completed successfully. The minimum replacement price shown equals net sale proceeds, reflecting the general requirement to reinvest all proceeds into a replacement property of equal or greater value to achieve full deferral.
The formula
- Adjusted basis = original purchase price + improvements - depreciation taken
- Capital gain = sale price - selling costs - adjusted basis
- Tax deferred = (depreciation portion x recapture rate) + (remaining gain x (federal + state rate))
- Minimum replacement price = sale price - selling costs
Worked example
An investor bought a property for $300,000, added $40,000 in improvements, and has taken $70,000 in depreciation. The property now sells for $620,000 with $40,000 in selling costs. Adjusted basis is $300,000 plus $40,000 minus $70,000, or $270,000, and net sale proceeds are $580,000, giving a total capital gain of $310,000.
Of that gain, $70,000 is taxed as depreciation recapture at 25%, or $17,500, and the remaining $240,000 is taxed at a combined 20% federal rate, or $48,000. Total tax deferred through a 1031 exchange would be $65,500, and the minimum replacement price to achieve full deferral is $580,000.
Frequently asked questions
What is depreciation recapture and why is it taxed separately?
Depreciation recapture applies to the portion of gain equal to depreciation previously deducted against taxable income, and it is generally taxed at a different rate than standard long-term capital gains. Separating the two portions gives a more accurate total tax estimate than applying one flat rate to the entire gain.
What are the key deadlines for a 1031 exchange?
Under current rules, an investor generally has 45 days from the sale of the relinquished property to identify potential replacement properties, and 180 days total to close on the replacement. Missing either deadline typically disqualifies the exchange, so timing must be planned carefully in advance.
Does a 1031 exchange eliminate the tax owed?
No, it defers the tax rather than eliminating it. The deferred gain carries over into the replacement property's cost basis, meaning the tax liability is generally realized later, such as when the replacement property is eventually sold in a taxable transaction rather than exchanged again.
What happens if I don't reinvest all the net proceeds?
Reinvesting less than the full net sale proceeds, or acquiring a replacement property of lesser value, typically triggers taxable gain, known as boot, on the difference. This calculator's minimum replacement price reflects what's generally needed to defer the entire gain rather than a partial amount.
Do I need a Qualified Intermediary for a 1031 exchange?
Yes, current rules generally require a Qualified Intermediary to hold the sale proceeds between closing on the relinquished property and closing on the replacement property; investors cannot take direct receipt of the funds without jeopardizing the exchange. A CPA or intermediary can confirm specific requirements for a transaction.
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