1031 Exchange Calculator

A 1031 exchange (also called a like-kind exchange) allows real estate investors to defer capital gains taxes when selling an investment property by reinvesting the proceeds into a similar "like-kind" property. Under IRC Section 1031, the gain is deferred rather than eliminated — it reduces the basis of the replacement property, so the tax comes due when you eventually sell without exchanging.

Since the Tax Cuts and Jobs Act (TCJA §13303) took effect for exchanges after December 31, 2017, only real property held for investment or business use qualifies — and that limitation is permanent law, not a temporary provision that sunsets. Rental houses, apartment buildings, commercial buildings, raw land, and certain long-term leaseholds all qualify. Personal residences, fix-and-flip inventory, stocks, bonds, partnership interests, and all personal property (vehicles, equipment, aircraft, franchises) do not. US real property is also never like-kind to foreign real property under IRC §1031(h).

Two deadlines run concurrently from the day you close the sale of the relinquished property (IRC §1031(a)(3)): (1) the 45-day identification period — you must identify replacement property in a signed writing delivered to your qualified intermediary within 45 calendar days; and (2) the 180-day exchange period — you must receive the replacement property within 180 calendar days, or by the due date (including extensions) of your tax return for the year of the sale, whichever comes first. Both counts include weekends and holidays and are not extended when they land on one.

Boot is any value you receive in the exchange that is not like-kind real property. The two common forms are cash boot (sale proceeds you keep instead of reinvesting) and mortgage boot (net debt relief — your old loan payoff exceeds the new loan plus any fresh cash you contribute). Boot does not disqualify the exchange; it makes part of the gain taxable. In our cash-boot example, selling for $500,000 and buying a $420,000 replacement leaves $80,000 of boot, so $80,000 of the $200,000 gain is recognized and $120,000 stays deferred.

"Dollar for dollar" describes how boot converts deferred gain into taxable gain under IRC §1031(b): every dollar of boot you receive causes one dollar of your realized gain to be recognized (taxed now), until the boot equals the full realized gain. The formula is recognized gain = the lesser of total boot or total realized gain. Receiving $80,000 of boot against a $200,000 realized gain recognizes exactly $80,000; boot beyond the realized gain would be a return of capital, not extra taxable gain.

Effectively yes, for any deferred (non-simultaneous) exchange. If you or your agent touch the sale proceeds — even briefly — the IRS treats you as being in constructive receipt of cash, and the transaction becomes a taxable sale (Treas. Reg. §1.1031(k)-1(f)). A qualified intermediary (QI) under the §1.1031(k)-1(g)(4) safe harbor holds the proceeds between closings and acquires and transfers the properties on paper. Your QI cannot be a "disqualified person": your attorney, accountant, real estate agent, employee, or someone who acted as your agent within the prior two years.

In a full deferral (no boot), depreciation recapture is deferred along with the rest of the gain. If boot causes gain to be recognized, the recognized gain is treated first as unrecaptured Section 1250 gain, taxed at up to 25% (to the extent of the depreciation you claimed), and any recognized gain above that layer is taxed at your long-term capital gains rate (0%, 15%, or 20%). In our debt-relief example, $80,000 of recognized gain splits into $70,000 taxed at 25% and $10,000 at the capital gains rate — $19,000 due now versus $44,500 on an outright sale.

The replacement property's basis equals its purchase price minus the gain you deferred (IRC §1031(d)). In the full-deferral example, a $650,000 replacement carrying $190,000 of deferred gain starts with a basis of $460,000, not $650,000. That lower basis means smaller depreciation deductions going forward and a larger taxable gain when you eventually sell without another exchange — the deferred gain rides along inside the reduced basis.

No. Section 1031 only applies to property held for productive use in a trade or business, or for investment — your home is neither. Primary residences get their own break: the Section 121 home-sale exclusion. If you convert a rental into your residence, or a residence into a rental, the two provisions can interact (Rev. Proc. 2005-14 allows applying §121 and §1031 to the same sale in some conversions). Our Section 121 vs 1031 comparison tool walks through that decision.

If you exchange with a related party (family members, or entities under more than 50% common ownership per IRC §267(b)/§707(b)), IRC §1031(f) requires BOTH parties to hold their received properties for at least 2 years after the exchange. If either side disposes of its property within 2 years, the originally deferred gain becomes taxable in the year of that disposition. Exceptions apply for death, involuntary conversions, and transactions the IRS accepts as not tax-avoidance motivated. Buying replacement property FROM a related party who cashes out is the classic trap the rule targets.