1031 Exchange Calculator

A 1031 exchange lets an investor defer capital gains tax by rolling proceeds from a sold property into a replacement, and this calculator's core job is separating what's actually taxed (boot) from what isn't (the deferred portion). It starts by finding the adjusted basis — original purchase price minus depreciation already claimed — then computes total realized gain as net sale proceeds (sale price minus selling costs) minus that adjusted basis. That gain is split into two pieces taxed at different rates: depreciation recapture, capped at whichever is smaller between total depreciation taken and the total gain, taxed at the recapture rate (25% federal by default); and the remaining capital gain, taxed at the long-term capital gains rate plus a flat 3.8% Net Investment Income Tax. Comparing that combined "totalTaxWithout1031" figure against tax actually owed under the exchange is where the deferral shows up: to properly defer all gain, IRS rules require buying equal-or-greater value with equal-or-greater debt, and any shortfall becomes taxable "boot" — this calculator computes boot from two sources, price boot (selling for more than you buy) and debt boot (reducing your mortgage balance without replacing it), taxing the combined boot at your capital gains plus state rate.

It also flags the two hard deadlines that make 1031 timing unforgiving — written directly into the statute at 26 U.S. Code §1031(a)(3): 45 days to identify replacement properties and 180 days to close. One easy misread: "cash needed at closing" only appears when your required down payment on the replacement exceeds the equity carried over from the sale — a larger, more leveraged replacement property can still require fresh cash even when the exchange itself defers all your gain.