1031 Exchange Calculator

The real tax cost of selling outright

When you sell an investment property, the IRS calculates your net realized gain, not your raw cash profit. Federal real estate taxes are not a flat rate. They stack progressively, which changes the math considerably. Take a property bought for $350,000 that sells for $800,000. With $75,000 in accumulated depreciation and $48,000 in exchange closing costs (broker commissions, escrow fees, title charges, and QI fee), the gain calculation breaks down like this:

That $477,000 breaks into two parts. The first $75,000, matching your lifetime depreciation deductions, gets taxed at a flat 25% under §1250 regardless of your income bracket. The remaining $402,000 in appreciation stacks on top of your ordinary income and gets taxed progressively at 15% or 20% depending on your 2026 bracket. Single investors with total MAGI above $200,000 (or $250,000 for married filing jointly) also owe the 3.8% NIIT on the full realized gain. Add it up and the federal bill lands somewhere between $115,000 and $140,000 before any state taxes.

The two deadlines you cannot miss

The IRS gives you two hard deadlines under §1031(a)(3). Miss either one by a single day and the exchange is void, with the full tax bill due immediately. You have 45 calendar days from the close of escrow to identify replacement properties in writing to your Qualified Intermediary. You then have 180 calendar days total to close on the replacement, or by the due date of your federal tax return including extensions, whichever comes first. The clock starts the day your relinquished property closes escrow. It does not stop for weekends, holidays, or wire delays.

How boot works and the offset rules that matter

Boot is any non-like-kind value you receive in the exchange. Most commonly that is cash left in the QI account that you pocket, or net debt relief when your new loan is smaller than your old one. Boot is taxed immediately up to your total realized gain. To get full deferral, your replacement property needs to equal or exceed the net amount realized on the sale and you need to reinvest every dollar of net cash proceeds.

Treasury Regulation §1.1031(b)-1(c) sets up an asymmetry worth knowing. You can bring personal cash to the new closing to offset a drop in your mortgage balance. But taking on a bigger new mortgage cannot shelter cash you already pocketed from the sale. If your old loan was $300,000 and you only take on $250,000 on the new property, that $50,000 gap is taxable debt relief boot unless you bring $50,000 in fresh cash to equalize it. The calculator models this offset automatically.

The substituted basis and what happens when you eventually sell

In a fully deferred exchange, your basis in the new asset is not what you paid for it. The adjusted basis from the old property carries forward directly into the new one. The deferred tax liability travels with the asset. A lot of investors string together successive 1031 exchanges over their lifetimes and defer taxes indefinitely. When they die, heirs receive a stepped-up basis to current fair market value under current federal law, which wipes out the accumulated deferred gain entirely. That is what the phrase "swap till you drop" refers to.