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1031 Exchange Tax Calculator
About to sell an investment property and thinking you can keep all the proceeds? The IRS wants their cut. Unless you do a 1031 exchange. Let's see how much tax you'd defer—and what you need to buy to avoid writing a check to Uncle Sam.
Property Being Sold
Tax Information
Tax Deferral Analysis
⏰ Critical IRS Deadlines
- Day 0: Close on sale (clock starts)
- Day 45: Identify replacement properties (in writing)
- Day 180: Close on replacement (or tax return due, whichever is earlier)
⚠️ To Defer 100% of Tax:
Replacement property must be: 1) Equal or GREATER value than sale price, AND 2) Equal or GREATER debt/equity than what you're selling
1031 Exchange: The IRS's Most Generous Loophole
Sell a rental property for $500k that you bought for $300k? Normally you owe $30k-50k in federal taxes, plus state taxes. With a 1031 exchange, you pay $0 this year. Instead, you roll that entire gain into a bigger property. The tax bill doesn't disappear—it follows you to the next property. But you keep that money invested instead of handing it to the IRS.
💡 Real Talk from Rebecca Walsh, CPA
I've done 200+ of these exchanges. The #1 killer? The 45-day identification deadline. People think "I have 45 days to FIND a property." No. You have 45 days to IDENTIFY in writing to your QI (Qualified Intermediary). Found the perfect place on Day 46? Too bad. Your exchange is blown, taxes are due. Start hunting for replacements BEFORE you close on the sale. I tell clients: have 3 backup properties identified by Day 30. The market doesn't care about your deadlines.
The 1031 Exchange Rules (Don't Screw This Up)
1. Like-Kind Property Requirement
"Like-kind" sounds complicated. It's not. Any real estate for any other real estate works (post-2018 tax law). Examples:
- Apartment building → Strip mall (YES)
- Rental house → Farmland (YES)
- Warehouse → Office building (YES)
- Rental property → Raw land (YES, but risky—see "held for investment" below)
- Rental property → Your new house (NO—primary residences don't count)
What DOESN'T qualify post-2018: personal property (cars, boats, equipment, crypto). Only real estate.
2. Held for Investment or Business Use
Both properties (selling and buying) must be held for investment or business—not personal use. Gray areas:
- Vacation rental you use 30 days/year? Probably doesn't qualify.
- Fix-and-flip property? IRS says no—you're a dealer, not an investor.
- Airbnb you run as a business? Qualifies if you rent it >14 days/year and use it <14 days or 10% of rental days.
Safe harbor: IRS says hold the new property 2+ years. Technically no minimum, but sell in <1 year and IRS will challenge you.
⚠️ Common Mistake: Touching the Money
If sale proceeds hit YOUR bank account, the exchange is dead. Period. You MUST use a Qualified Intermediary (QI)—a neutral third party who holds the cash during the exchange. Fees: $800-1,500. Buyer pays QI → QI holds funds → QI pays for replacement property. If you access even $100 for an "emergency," that's taxable boot. Don't touch the money until AFTER you've closed on the replacement.
The Two Deadlines That Will Ruin Your Day
45-Day Identification Period
Starting the day you close on the sale (Day 0), you have 45 CALENDAR days to identify potential replacement properties in writing to your QI. Weekends and holidays count. Miss it by 12 hours? Exchange is dead.
How to identify:
- Submit addresses to your QI in writing (email is fine)
- You can identify up to 3 properties (any value) OR unlimited properties up to 200% of sale price OR "95% rule" (rare)
- Most people pick 3 and hope at least one closes
180-Day Exchange Period
You have 180 days from Day 0 to CLOSE on replacement property. Or your tax return due date (including extensions), whichever is earlier. Example: Close sale on Dec 1. Your 180 days would end May 29. But tax return is due April 15 (or Oct 15 with extension). You'd need to close by April 15 if no extension, or Oct 15 with extension.
Boot: The Taxable Leftover
"Boot" = cash or debt relief you pocket. It's taxable in the year of exchange.
Cash Boot Example:
- Sell for $500k, buy replacement for $450k
- Defer tax on $450k, pay tax on $50k boot
Debt Boot Example:
- Sell property with $300k mortgage, buy replacement with only $250k mortgage
- You reduced debt by $50k—that's $50k of boot (taxable)
How to avoid boot: Replacement must be equal or greater value AND equal or greater debt. If you pay off debt, add cash to make up the difference.
💡 Rebecca's Hack: The "Cash Bootstrapping" Strategy
Client sells property for $600k, only has $500k replacement lined up. Normally $100k boot = big tax bill. Solution: Have QI use $100k of proceeds to buy DST (Delaware Statutory Trust) shares—fractional ownership in large commercial properties. DSTs qualify for 1031. Now client exchanges into $500k property + $100k DST. Zero boot, zero tax. Later, exchange out of DST into another property or just hold it for passive income.
Real-World Example
Scenario: Midwest rental property sale
- Sale price: $500,000
- Original basis: $300,000
- Depreciation taken: $50,000 (basis now $250k)
- Capital gain: $500k - $250k - $30k selling costs = $220k
- Depreciation recapture: $50k × 25% = $12,500
- Long-term cap gains: $170k × 15% = $25,500
- State tax (Illinois 4.95%): $220k × 4.95% = $10,890
- Total tax bill: $48,890
With 1031 Exchange:
- Tax deferred: $48,890
- Net proceeds: $500k - $200k mortgage - $30k costs = $270k
- Must buy replacement: $500k+ value
- Cash needed: Depends on financing. If 75% LTV, need ~$125k down + closing costs.
Investor keeps $48,890 invested instead of paying IRS. Over 10 years at 6% return, that's an extra $87,446 compounded.
When NOT to Do a 1031
Skip it if:
- You're done with real estate (exchange just delays the tax—eventually you pay)
- Your income is low this year (0% or 15% brackets are great—pay the tax now while it's cheap)
- You can't find replacement property in 45 days (don't force it—buying a bad property to avoid tax is stupid)
- Your gain is small (<$50k) and QI fees eat up savings
Do it if:
- Large taxable gain (>$100k)
- You're upgrading to a better property anyway
- High-tax state (CA, NY, NJ)—defer state tax too
- You plan to hold real estate until death (heirs get step-up in basis, tax disappears)
The "Die with It" Strategy (Legally Avoid Tax Forever)
Here's the ultimate 1031 hack: Keep exchanging into bigger properties for your entire life. When you die, your heirs inherit at "stepped-up basis"—the property's fair market value on date of death. ALLL accumulated gains vanish. Tax bill: $0.
Example:
- 1985: Buy property for $100k
- 2000: Exchange into $300k property
- 2015: Exchange into $600k property
- 2025: Exchange into $1M property
- 2040: You die. Property worth $1.5M.
- Heirs inherit at $1.5M basis. Owe $0 in capital gains.
Accumulated gain over 55 years: $1.4M. Tax paid: $0. This is why wealthy real estate investors love 1031s.
Reviewed by Rebecca Walsh, CPA
Real Estate Tax Specialist (12 Years, 200+ 1031 Exchanges)
Rebecca has saved clients $12M+ in deferred taxes. Her advice? Start the replacement search 60 days BEFORE you close the sale, not after. The clock is brutal.
Frequently Asked Questions
What is a 1031 exchange?
A tax loophole that lets you sell investment property and buy another WITHOUT paying capital gains tax—IF you follow strict IRS rules. Named after IRC Section 1031. You defer (delay) taxes indefinitely by rolling gains into new property. Sell a $500k rental, buy a $600k rental, pay $0 in taxes that year. The IRS gets paid eventually (when you finally sell without exchanging), but you keep that money invested instead.
What are the 1031 exchange deadlines?
TWO brutal deadlines: 1) 45 days to IDENTIFY replacement properties (in writing to qualified intermediary). Miss this by 1 day? Your exchange is dead, taxes are due. 2) 180 days to CLOSE on replacement property. Both measured from the day you close on the sale, not list it. Weekends and holidays COUNT. No extensions. Ever. I've seen people lose $80k in taxes because they missed the 45-day mark by 12 hours.
Can I do a 1031 exchange on my primary residence?
NO. 1031 is for INVESTMENT or BUSINESS property only. Your house you live in? Use the $250k/$500k capital gains exclusion instead (Section 121). Vacation home you rent out 2 weeks a year? Gray area—IRS says it needs to be 'held for investment' with 'substantial rental activity'. Safe rule: if you use it personally >14 days/year or 10% of rental days, it probably doesn't qualify.
What if the replacement property costs less?
You pay tax on the difference. IRS calls this 'boot'—any cash or debt relief you receive. Example: Sell for $500k, buy replacement for $450k. That $50k difference is taxable boot. Same if you reduce debt: owed $300k on old property, only borrow $250k on new one—that $50k debt relief is boot. To defer 100% of tax, replacement must be equal or greater value AND equal or greater debt.