1031 Exchange Calculator
What a like-kind exchange defers: capital gains, depreciation recapture, and state tax on an investment property sale.
Deferred, not forgiven. The basis carries over to the replacement property, so the tax arrives on a later sale unless that one is exchanged too. Note the recapture line: depreciation is taxed at 25% rather than the long-term capital gains rate, and it applies even when the property barely appreciated. Strict deadlines apply (45 days to identify, 180 to close), so this is a conversation to have with a qualified intermediary before listing, not after.
A 1031 exchange lets you roll the proceeds of an investment property into another one without paying tax on the gain today. The tax is deferred, not forgiven: your basis carries over to the replacement property, so the bill arrives whenever you finally sell without exchanging again.
Worked example. Sell for $500,000 with $30,000 of selling costs, against a $300,000 adjusted basis, having taken $80,000 of depreciation. The gain is $170,000. The first $80,000 is recaptured at 25%, which is $20,000. The remaining $90,000 is taxed at 15%, another $13,500. Total federal tax of $33,500 stays invested in the next property instead of going to the IRS. Add a 5% state rate and the deferral is $42,000.
Frequently asked questions
What qualifies as like-kind?
For real estate the definition is broad: almost any US investment or business real property exchanges for almost any other. Raw land for an apartment building is fine. A primary residence is not, and since 2018 the rules cover real property only, so personal property no longer qualifies.
What happens if I take some cash out?
Cash or debt relief you receive is called boot, and it is taxable immediately even inside an otherwise valid exchange. Taking $50,000 off the table means tax on $50,000 of gain, with the rest still deferred.
Is the tax ever forgiven?
Under current law, heirs receive a stepped-up basis at death, which eliminates the deferred gain. That is the basis of the swap-till-you-drop approach. It depends on estate law that can change, so it is a plan to make with a professional rather than an assumption to rely on.
Does this calculator include net investment income tax?
No. The 3.8% net investment income tax applies above certain income thresholds and would raise the deferred amount further. Enter it in the state rate field if you want it approximated, and confirm the specifics with a tax advisor.
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Calculators model hypothetical outcomes from the inputs you provide. They are informational only, not financial, investment, tax, or legal advice.