1031 Exchange Tax Savings Calculator

1031 Exchange Complete Guide

What a 1031 Exchange Does?

Section 1031 of the IRS code allows you to DEFER capital gains tax and depreciation recapture when you sell investment real estate and reinvest proceeds into 'like-kind' replacement property. Critical: deferral, not elimination — when you eventually sell without doing another exchange, all accumulated gains and recapture come due. But: 'die with it and your heirs get stepped-up basis at death — gains and depreciation recapture potentially eliminated entirely. The Tax Cuts and Jobs Act (2018) restricted 1031 exchanges to real property only, having previously also allowed exchanges of other business or investment assets like equipment or vehicles.

What's the key thing to understand about The Rules — Strict Deadlines?

1031 has unforgiving timelines: 45-DAY IDENTIFICATION PERIOD — within 45 days of closing on relinquished property, you must identify replacement property in writing to your Qualified Intermediary (QI). 180-DAY EXCHANGE PERIOD — you must close on replacement property within 180 days of relinquished property sale (NOT 180 days from identification — total 180 days from start). Identification rules: 3-property rule (identify up to 3, no value limit), 200% rule (any number up to 200% of relinquished

What should I know about Boot — What Triggers Tax?

Boot = anything received in exchange that ISN'T like-kind real estate. Triggers tax up to the amount of boot received. Cash boot: any cash you actually receive (e.g., replacement cost less than relinquished). Debt boot: if new debt is less than old debt, the reduction is taxable boot. Example: $500k sale, $200k old debt, paying off old debt at closing. Buy $400k replacement, $150k new debt. Old debt $200k - new debt $150k = $50k debt boot (taxable). PLUS if you take any cash out of the sale rather than reinvesting it fully, that's cash boot, and it's taxable in the same way as the debt boot.

What should I know about Depreciation Recapture — The Hidden Killer?

When selling investment property, two tax categories apply: (1) Depreciation recapture: ALL depreciation taken (or that could have been taken) over your ownership is taxed at maximum 25% federal rate (regardless of your normal cap gains rate). (2) Capital gain on appreciation: taxed at 0/15/20% based on income. Example: bought rental for $200k, took $80k depreciation, sold for $500k. Adjusted basis: $200k - $80k = $120k. Total gain: $380k. Recapture: $80k taxed at 25% = $20k. Cap gain: $300k taxed at long-term capital gains rates, which are generally lower than the 25% recapture rate applied to the depreciation portion of the gain.