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) res

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

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 from sale, that's ca

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 tax