Selling an investment property can trigger a surprisingly large tax bill. If you bought a rental home for $200,000 and sell it for $500,000, the IRS wants its share of the $300,000 gain — and that share includes both long-term capital gains tax and depreciation recapture. A Section 1031 like-kind exchange lets you defer that entire bill if you roll the proceeds into another investment property, but only if you follow the rules exactly. This calculator estimates how much tax you can defer, what you will owe today if you take cash out, and what your new cost basis will be in the replacement property.
Adjust the inputs and every figure updates instantly. Run the numbers before you sign a purchase contract so you know whether a 1031 exchange actually helps your deal.
How to Use
- Enter the Sale Price of the property you are selling — the gross amount the buyer is paying before commissions and closing costs.
- Type your Adjusted Cost Basis. This is what you originally paid, plus any capital improvements (new roof, kitchen remodel, addition), minus depreciation you have already claimed on your tax returns.
- Set Selling Costs as a percentage of the sale price. Broker commissions and closing fees are usually 5%–7%; enter 6 as a starting point.
- Fill in Accumulated Depreciation — the total depreciation you have taken over the years. This portion is taxed at a maximum 25% recapture rate, not the usual 15%.
- Set your Federal Long-Term Capital Gains Rate. Most middle- to high-income investors pay 15%; single filers over about $518,900 in 2024 pay 20% plus the 3.8% Net Investment Income Tax.
- Enter your Depreciation Recapture Rate (usually 25% for unrecaptured Section 1250 gain) and your State Capital Gains Tax Rate (0% in states like Texas, Florida, or Wyoming; 6%–13% in California, New York, or Oregon).
- Type the Replacement Property Price. To defer 100% of the tax, this must be equal to or greater than the net sale proceeds, and you must reinvest all of the cash.
- Use Cash / Equity Pulled Out (Boot) to model taking money off the table. Any cash you receive — or any mortgage debt reduction you walk away with — is "boot" and is taxed immediately.
The result card shows your net proceeds, the split between depreciation recapture and remaining capital gain, the tax you would owe without a 1031, the tax due today if you do one, and the total tax deferred. The final line is your new carryover basis in the replacement property — the number that determines your tax when you eventually sell.
How a 1031 Exchange Defers Tax
Without a 1031 exchange, the IRS treats your sale like any other:
- Net sale proceeds = sale price minus selling costs.
- Realized gain = net proceeds minus your adjusted basis.
- Depreciation recapture portion (up to total depreciation taken) is taxed at 25% federally.
- The remaining capital gain is taxed at your federal long-term rate plus your state rate.
With a properly structured 1031 exchange, the IRS treats the sale and the purchase as one continuous investment. You recognize no gain, owe no tax today, and the deferred gain is simply subtracted from the replacement property's price to produce a new, lower cost basis. When you eventually sell the replacement property for cash (without another 1031), the full deferred gain becomes taxable — which is why 1031s are often described as "pay later, not never."
The deadlines are strict: you have 45 days from closing on the sale to identify up to three replacement properties, and 180 days to close on the purchase. A qualified intermediary must hold the proceeds; you cannot touch the money yourself, or the exchange collapses and the entire gain becomes taxable.
Examples
Example 1 — Full deferral on a $500,000 sale. You sell a rental for $500,000, your adjusted basis is $200,000, selling costs are 6% ($30,000), and you have taken $50,000 of depreciation. Net proceeds are $470,000; realized gain is $270,000; depreciation recapture is $50,000; remaining capital gain is $220,000. At a 15% federal rate, 25% recapture rate, and 5% state rate, the tax without a 1031 is $50,000 × 25% + $220,000 × 20% = $56,500. Reinvesting all proceeds into a $700,000 property with no cash out means tax due today is $0, tax deferred is $56,500, and your new carryover basis is $700,000 − $270,000 = $430,000.
Example 2 — Taking boot out. On the same deal, you pull $100,000 of cash at closing to pay off debt. That $100,000 is taxable boot: at a combined 20% rate you owe $20,000 today, and the remaining $36,500 is deferred. Your new basis stays $430,000 because the boot you took was taxed immediately.
Example 3 — A $5 million portfolio rollover. You sell an apartment building for $5,000,000 with a $2,000,000 basis, 6% selling costs, and $400,000 of depreciation. At a 20% federal rate, 25% recapture, and 6% state rate, the tax without exchange is roughly $698,000. Rolling into a $7,000,000 replacement defers the entire amount and sets your new basis at about $4,300,000.
FAQ
What is a 1031 exchange?
A Section 1031 like-kind exchange is an IRS rule that lets you defer paying capital gains and depreciation recapture tax when you sell one investment property and reinvest the proceeds in another "like-kind" property. It applies to business or investment real estate — not your primary residence — and the replacement property must be of equal or greater value.
What properties qualify as "like-kind"?
For real estate, like-kind is a very broad standard: a duplex can be exchanged for an office building, raw land for a retail strip center, or a residential rental for a vacation rental you do not personally use. The property must be held for business or investment purposes; primary residences, dealer property (flips), and inventory do not qualify.
What are the 45-day and 180-day rules?
After you close on the sale, you have exactly 45 calendar days to identify up to three replacement properties (the "three-property rule"), and 180 days to close on the purchase. These deadlines run from the sale closing date, not from the day you find a property, and extensions are almost never granted.
What is boot and how is it taxed?
"Boot" is any non-like-kind value you receive in the exchange. Cash boot is money you take out at closing; mortgage boot occurs when you reduce your mortgage debt (e.g., selling a $500,000 mortgaged property and buying a $400,000 one with no new loan). Boot is taxed immediately, up to the amount of your realized gain, at your capital-gains rate.
Can I use a 1031 exchange for a vacation home?
Only if the vacation home is treated as an investment property: you must rent it out for at least 14 days (or more than 10% of the days you use it personally) per year, and you cannot use it for personal enjoyment beyond the 14-day personal-use limit set by IRS Revenue Procedure 2008-16.
How long do I have to hold the replacement property?
The IRS generally expects you to hold the replacement property for investment for at least one to two years before selling or converting it to personal use. Holding it for less than a full tax year can invite an IRS challenge that the exchange was never a true investment transaction.
Does a 1031 exchange cancel the tax forever?
No. It defers the tax, it does not forgive it. Your new property gets a carryover basis reduced by the deferred gain, so when you eventually sell for cash without another 1031, the full accumulated gain — plus all the new appreciation — becomes taxable. Investors often use 1031 exchanges repeatedly, and ultimately pass the property to heirs who receive a stepped-up basis at death, eliminating the tax entirely.
Disclaimer
This 1031 exchange calculator is provided for informational purposes only and does not constitute tax, legal, or investment advice. Estimates use simplified federal and state rates and do not account for the 3.8% Net Investment Income Tax, state-specific recapture rules, depreciation methods, closing-cost allocations, or the 1031 Exchange Regulations' safe-harbor requirements. Actual results depend on your exact tax situation, the jurisdiction of your properties, and the structure of your exchange. Always consult a qualified tax advisor and a licensed qualified intermediary before executing a 1031 exchange.