What is a 1031 exchange?

A 1031 exchange (named after IRC Section 1031) allows real estate investors to defer capital gains tax when selling an investment property by reinvesting the proceeds into a 'like-kind' replacement property. The tax is deferred, not eliminated, and becomes due when the replacement property is eventually sold without another exchange.

What are the 45-day and 180-day rules?

After closing on your relinquished property, you have 45 days to identify potential replacement properties in writing and 180 days to close on the replacement. Both deadlines are fixed and cannot be extended except in federally declared disaster areas. Missing either deadline voids the exchange and makes the full gain taxable.

What is 'boot' in a 1031 exchange?

Boot is any value you receive in a 1031 exchange that is not like-kind real estate. Cash boot (keeping some sale proceeds) and mortgage boot (taking on less debt on the replacement than you had on the relinquished property) are the most common forms. Boot is taxable in the year of the exchange even if the rest of the gain is deferred.

What is depreciation recapture in a 1031 exchange?

Depreciation recapture (unrecaptured Section 1250 gain) is taxed at a maximum 25% federal rate when you sell real estate that you have depreciated. In a full 1031 exchange, the recapture is deferred along with the capital gain. In a partial exchange where boot is received, recapture is recognized before capital gain when calculating the taxable portion.

Does California recognize 1031 exchanges?

Yes, California recognizes 1031 exchanges and defers state capital gains tax during the exchange. However, California has a unique 'clawback' provision: if you complete a 1031 exchange out of California property into a replacement property in another state and later sell the replacement without another exchange, California will tax the originally deferred California gain even if you have moved out of state.

Not Financial Advice. CalcMoney provides calculators for educational and planning purposes only. Results are estimates and do not constitute financial, tax, or investment advice. Consult a qualified professional before making financial decisions. Terms apply.

Real Estate

1031 Exchange Engine.

Defer capital gains on real estate by reinvesting in like-kind property. Calculate your exact deferred tax and net investing power.

Total capital gains tax deferred by rolling proceeds into a like-kind replacement property
Depreciation recapture (25% rate) vs. capital gain (20% + 3.8% NIIT) tax breakdown
Net proceeds available to invest vs. selling outright and paying tax

IRC Section 1031 / IRS Rev. Proc. 2000-379,210 uses / mo

Parameters

Sale Price

Adjusted Basis (Purchase Price)

Accumulated Depreciation

Boot Received (Cash Not Reinvested)

Annual Income

1031 Exchange Tax Deferral Analysis

Tax Deferred via 1031

$238,000

total federal tax deferred to future sale

Tax Without 1031

$238,000

Tax With 1031

Extra Investing Power

$238,000

Tax Deferred

Total Tax Preserved for Reinvestment

Depreciation Recapture Tax

Tax on accumulated depreciation at the 25% unrecaptured Section 1250 rate.

$20,000

Capital Gain Tax

Federal long-term capital gains + 3.8% NIIT on the gain above depreciation.

$218,000

Net Proceeds (1031)

Full sale proceeds available to reinvest in replacement property (minus boot tax).

$1,500,000

10-yr Growth on Deferred Tax

What the deferred tax grows to at 7%/year over 10 years of compounding.

$467,000

Realized Gain

$1,000,000

Net Proceeds Without

$1,262,000

Investing Power Gained

$238,000

Deferred Tax 10yr Growth

$467,000

2 free AI insights left

1031 Exchange Tax Deferral Scenarios

Scenario	Without 1031	With 1031	Tax Deferred
$1M gain, no depreciation	$238,000 tax	$0 tax	$238,000
$500K gain + $100K depreciation	$144,000 tax	$0 tax	$144,000
$2M gain, $200K boot kept	$476,000 tax	$47,600 tax	$428,400

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