1031 Exchange Calculator

Enter your sale details to estimate how much tax a 1031 exchange could defer. This calculator shows the gain that would be taxed without an exchange, the estimated tax amount, and the minimum replacement property requirements. A 1031 exchange is complex — consult a qualified intermediary and CPA before proceeding.

What is 1031 Exchange?

A 1031 exchange (named after Internal Revenue Code Section 1031) allows an investor to defer capital gains tax when selling an investment property by reinvesting the proceeds into another qualifying investment property. The tax is deferred, not eliminated — it is postponed until the replacement property is eventually sold without another exchange. To fully defer all taxes, two requirements generally apply: the replacement property should be of equal or greater value than the property sold, and all net sale proceeds should be reinvested. If you receive any cash (called "boot"), that portion may be taxable. Using a qualified intermediary (QI) to hold the funds is generally considered essential. The timeline is strict under current rules. From the date of sale, you generally have 45 days to identify potential replacement properties (up to three properties under the standard rule) and 180 days to close on one of them. Missing either deadline may result in the exchange failing and the full gain becoming taxable. The tax deferral includes both long-term capital gains and depreciation recapture. Without a 1031 exchange, depreciation recapture may be taxed at rates up to 25% and capital gains at your applicable rate. The combined tax on a property held for 10+ years can be substantial — often 15-30% of the total gain. Deferring this amount and reinvesting it allows you to acquire a larger replacement property and continue building wealth tax-deferred. Many investors use serial 1031 exchanges throughout their career, deferring gains across multiple property upgrades. Some investors defer gains indefinitely by holding the final property until death, at which point heirs may receive a stepped-up basis under current rules. Tax rules change — consult a CPA and qualified intermediary for current requirements.

How to Calculate

1. Enter the sale price of the property you are selling (or plan to sell)
2. Enter selling costs (agent commissions, closing costs — typically 5-8%)
3. Enter the original purchase price
4. Enter total depreciation claimed during ownership
5. Enter any capital improvements made during ownership
6. Select your applicable long-term capital gains tax rate
7. Review the estimated tax without a 1031, the tax deferred, and replacement property requirements
8. Consult a qualified intermediary and CPA before initiating an exchange

Formula

Net Sale Proceeds = Sale Price × (1 − Selling Costs %) Adjusted Basis = Purchase Price + Capital Improvements − Depreciation Claimed Total Deferred Gain = max(0, Net Sale Proceeds − Adjusted Basis) Depreciation Recapture = min(Depreciation Claimed, Total Gain) — estimated at up to 25% Capital Gain = max(0, Total Gain − Recapture) — at your CG rate Tax Without 1031 = Recapture Tax + Capital Gains Tax Tax Deferred = same as Tax Without 1031 (fully deferred if exchange is completed properly) Minimum Replacement Price = Sale Price (to defer all gain) Minimum Equity to Reinvest = Net Sale Proceeds (all proceeds must be reinvested)

Example Calculation

For a property sold at $400,000 with 6% selling costs, originally purchased for $300,000, $87,273 depreciation claimed, $0 improvements, at 15% CG rate: Net Sale Proceeds = $400,000 × 0.94 = $376,000 Adjusted Basis = $300,000 + $0 − $87,273 = $212,727 Total Gain = $376,000 − $212,727 = $163,273 Depreciation Recapture Tax = $87,273 × 25% = $21,818 Capital Gains Tax = $76,000 × 15% = $11,400 Total Tax Without 1031 = $33,218 Tax Deferred by 1031 = $33,218 By completing a 1031 exchange, you defer $33,218 in estimated federal tax. You would need to acquire a replacement property of at least $400,000 and reinvest all $376,000 in net proceeds.

Frequently Asked Questions