1031 Exchange Calculator

Frequently Asked Questions

What is like-kind property under current law?

After the Tax Cuts and Jobs Act of 2017, Section 1031 applies only to real property. Within real estate, like-kind is broadly interpreted - raw land for an apartment building qualifies. Both properties must be held for investment or business use in the United States.

What happens if I miss the 45-day or 180-day deadline?

Missing either deadline disqualifies the entire exchange and triggers full capital gains recognition on the original sale. There are no extensions for weekends, holidays, or natural disasters (with limited exceptions for federally declared disasters).

What is boot and how does it affect my taxes?

Boot is any non-like-kind property received, including cash you keep from the sale and debt reduction. Boot triggers gain recognition up to the amount of boot received.

Can I do a 1031 exchange on my primary residence?

No. Section 1031 applies only to investment or business-use property. A primary residence is eligible for the Section 121 exclusion ($250,000 single / $500,000 married) instead.

What is the new basis in the replacement property?

The replacement property's basis equals its purchase price minus the deferred gain. This lower basis means higher depreciation recapture and more gain when you eventually sell without exchanging.

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How It Works

Section 1031 of the Internal Revenue Code lets you defer capital gains tax when you sell an investment property and reinvest the proceeds into a like-kind replacement. The key formula: realized gain = sale price minus adjusted basis (original cost minus accumulated depreciation). Any portion not reinvested - called boot - triggers immediate gain recognition and tax.

Boot includes cash you receive and any reduction in debt. If the replacement property has less debt than the relinquished property, the debt reduction is treated as cash boot. The deferred gain carries into the new property, reducing its tax basis, so it will eventually be taxed when you sell without another exchange.

Tax on recognized gain uses two layers: depreciation recapture is taxed at 25% first; any remaining recognized gain is taxed at the long-term capital gains rate (typically 20%) plus the 3.8% Net Investment Income Tax (NIIT) for high-income taxpayers.

Key Metrics

The 45-day and 180-day rules are absolute:

45 days: From closing on the relinquished property, you must formally identify replacement property in writing to your Qualified Intermediary.

180 days: You must close on the replacement property within 180 calendar days of selling the relinquished property.

Three-Property Rule: You may identify up to 3 replacement properties of any value.

200% Rule: Identify any number of properties as long as their combined value does not exceed 200% of the relinquished property's value.

Qualified Intermediary (QI): A neutral third party who must hold sale proceeds - you cannot touch the funds at any point.

Tips

Start identifying replacement properties before the closing date - the 45-day clock starts immediately and cannot be extended.

Vet your Qualified Intermediary carefully; QI insolvencies have wiped out investors. Look for audited financials and segregated escrow accounts.

To fully defer all gain, the replacement property must be equal to or greater in value than the relinquished property, and all equity must be reinvested.

Consider a Delaware Statutory Trust (DST) if you want to defer without managing another property - DSTs close quickly and are pre-qualified as 1031-compliant.

Track accumulated depreciation carefully; recapture at 25% on recognized gain can significantly increase your tax bill if boot is received.

FAQ

What is like-kind property under current law?

What happens if I miss the 45-day or 180-day deadline?

What is boot and how does it affect my taxes?

Boot is any non-like-kind property received, including cash you keep from the sale and debt reduction (when the replacement property has less debt than the relinquished property). Boot triggers gain recognition up to the amount of boot received.

Can I do a 1031 exchange on my primary residence?

No. Section 1031 applies only to investment or business-use property. A primary residence is eligible for the Section 121 exclusion ($250,000 single / $500,000 married) instead. A property that was a primary residence but converted to investment use may qualify if investment-use requirements are met.

What is the new basis in the replacement property?

The replacement property's basis equals its purchase price minus the deferred gain. This lower basis means higher depreciation recapture and more gain when you eventually sell without exchanging.

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