1031 Exchange Calculator

What a 1031 exchange actually saves you

A 1031 exchange lets you sell a rental or other investment real estate and buy another without paying tax on the gain now. Under IRC section 1031, gain on real property held for business or investment is not recognized if you exchange it for like-kind real property, which in practice means reinvesting through a qualified intermediary within strict deadlines. The tax is deferred, not forgiven: it carries into the basis of the new property.

The taxes being deferred come in layers: depreciation recapture (unrecaptured section 1250 gain, taxed at your ordinary rate up to a 25% maximum), federal long-term capital gains tax (0%, 15% or 20% depending on your total income), the 3.8% net investment income tax for higher-income sellers, and state income tax. The calculator above adds up those layers at the rates you enter, so you can compare a sale with a fully qualifying exchange.

The qualification checks in the results follow the practical rules for full deferral: the replacement property should be of equal or greater value, carry equal or greater debt (or you add cash to make up the difference), and absorb all of your net equity. Fall short on any of these and the shortfall, called boot, becomes taxable in the year of the exchange even though the rest of the transaction still qualifies.

What qualifies as like-kind property

Since 2018, section 1031 applies only to real property held for productive use in a trade or business or for investment (IRS Form 8824 instructions). “Like-kind” is broad for real estate: a rental house can be exchanged for an apartment building, raw land, a commercial building or a triple-net retail property. The limits:

• Real property in the United States and real property outside the United States are not like-kind.
• Property held primarily for sale, such as a fix-and-flip, does not qualify. Your intent and how long you held it matter.
• A home used solely as your personal residence does not qualify, although a former home now held as a rental can.
• Personal property no longer qualifies. Furniture and appliances that come with the building are “incidental” for identification purposes if they don’t exceed 15% of the property’s value, but their value is still taxable boot (IRS Publication 544).

The same taxpayer that sells must buy. If you own the rental personally, you generally must take title to the replacement personally or through a single-member LLC that is disregarded for tax. Changing owners midstream, such as a partnership selling and its partners buying, is a common way exchanges fail.

The deadlines and the qualified intermediary

In a deferred exchange, the two clocks start the day you transfer the property you are selling and run at the same time, weekends and holidays included (Form 8824 instructions, lines 5 and 6):

• 45 days to identify replacement property in a signed written document, describing it clearly (a street address or legal description) and delivering it to the intermediary or another proper party, not your own agent. Property you actually receive within the 45 days counts as identified.
• 180 days to receive the replacement property, or your tax return due date including extensions if that is earlier. If you sell in November, your April 15 due date arrives before day 180, so file an extension.

There are no extensions for missing a deadline. The only relief is a postponement the IRS announces for a federally declared disaster or similar event. You also cannot touch the money: if you have actual or constructive receipt of the proceeds, the sale is taxable. A qualified intermediary holds the funds under a written exchange agreement signed before the sale closes. Your employee, attorney, accountant, investment banker or real estate agent within the prior 2 years, and related parties, are disqualified persons who cannot act as your intermediary (Publication 544). Ask how the intermediary holds and safeguards the funds; if an intermediary fails in bankruptcy, Rev. Proc. 2010-14 offers only limited relief (Form 8824 instructions).

Identification rules: three-property, 200% and 95%

You can identify more than one property as a backup, but not an unlimited number. Publication 544 sets the limits, whatever number of properties you sell:

• Three-property rule. Up to three properties of any value. This is the rule most small investors use.
• 200% rule. Any number of properties, as long as their total fair market value at the end of the 45-day period is no more than double the value of the property you sold. Sell for $500,000 and you can identify, say, five properties worth $1,000,000 in total.
• 95% rule. If you exceed both limits, the exchange survives only for property received within the 45 days, plus identified property you acquire whose value is at least 95% of the total value of everything you identified. In practice that means buying nearly everything on the list.

You can revoke an identification in writing before the 45 days end. You must receive substantially the same property you identified. Buying a smaller portion of an identified property can still count if it does not differ in basic nature or character, as in the example in Treasury Regulation section 1.1031(k)-1(d).

Reverse and improvement exchanges

Reverse exchanges: buy first, sell second

If you find the replacement before you have sold, you cannot simply own both and call it an exchange. Rev. Proc. 2000-37, as modified by Rev. Proc. 2004-51, gives a safe harbor called a qualified exchange accommodation arrangement. An exchange accommodation titleholder takes title to one of the properties (usually the new one) and parks it for you (Publication 544; Form 8824 instructions). The requirements:

• A written agreement with the titleholder within 5 business days after it takes title.
• Identify the property you will sell within 45 days.
• Complete the exchange within 180 days.
• The safe harbor is not available for replacement property you owned within 180 days before it went to the titleholder.

Reverse exchanges need financing for the parked property while you still own the old one, and they cost more in fees. They are worth it mainly when the replacement is the scarce asset.

Improvement (build-to-suit) exchanges

Sometimes you want to use exchange money to improve the replacement property, for example buying a cheaper building and renovating it so the total reaches the value you need. Under Treasury Regulation section 1.1031(k)-1(e), improvements count as like-kind property only if they are in place when you receive the property. Work done after you take title is treated as services, not replacement property. So the titleholder or intermediary holds title while the work is done, and only the improvements completed by the time you receive the property (within the 180 days) count toward the replacement value. Construction delays are the main risk.

Related-party exchanges

Section 1031(f) restricts exchanges with related parties: your spouse, children, grandchildren, parents, grandparents, brothers and sisters, and related corporations, partnerships, trusts and estates (Form 8824 instructions, line 7). If you exchange directly with a related party, both of you must generally keep the properties for 2 years after the last transfer. If either disposes of the property sooner, the deferred gain is recognized in the year of that disposition. The exceptions are a disposition after the death of either party, an involuntary conversion where the threat arose after the exchange, and a disposition you can show had no tax-avoidance purpose. You must file Form 8824 for the 2 years after a related-party exchange.

A common trap is buying the replacement property from a relative through an intermediary. If the relative ends up with cash, the IRS treats the arrangement as structured to avoid the related-party rules and the exchange fails (Rev. Rul. 2002-83). Buying from an unrelated seller avoids the issue.

Delaware Statutory Trusts (DSTs)

A DST lets you exchange into a fractional interest in a large, professionally managed property such as an apartment community or a portfolio of net-leased buildings. Rev. Rul. 2004-86 held that an interest in a Delaware statutory trust structured as described in the ruling can be replacement property under section 1031, if the other requirements are met. For a landlord who wants to stop managing tenants but defer the tax, that can be the point of the exchange.

The structure that makes DSTs qualify also limits them. The trustee generally cannot accept new capital, refinance, or renegotiate leases, so the property can’t adapt much if the market changes. Interests are illiquid until the sponsor sells, typically years later, and sponsor fees and loads reduce returns. DSTs are usually sold as securities, often only to accredited investors. Treat the offering documents as you would any private investment, and get advice from someone who is not paid by the sponsor. The keep or sell rental property calculator includes a DST scenario so you can compare it with simply selling.

Partial exchanges and boot

An exchange does not have to be all or nothing. If you receive cash or other non-like-kind property, gain is recognized up to the amount of that boot, but never more than your total realized gain, and a loss is not recognized (Publication 544, “Partially Nontaxable Exchanges”). Boot comes in two forms:

• Cash boot. Proceeds you keep, money used for non-exchange costs such as loan fees or rent prorations, and personal property you receive.
• Mortgage boot. If the buyer takes over or pays off your debt, you are treated as receiving money in that amount. You can offset it by taking on debt on the new property or by adding your own cash.

The netting runs only one way. Under Treasury Regulation section 1.1031(d)-2 (Example 2), debt relief can be offset by new debt or cash you pay, but cash you receive is not offset by taking on more debt. Borrowing more on the replacement does not cancel the tax on cash you take out of the exchange.

When a partial exchange makes sense: if you need some cash, a partial exchange taxes only that portion and still defers the rest. That is often better than a full sale. How the recognized gain is split between unrecaptured section 1250 gain and capital gain affects the rate, so ask your CPA how it will be characterized.

Worked example: a full exchange vs a partial exchange with boot

Hypothetical, using the calculator’s default figures. A married couple filing jointly bought a rental for $300,000, claimed $60,000 of depreciation and sell it in 2026 for $500,000. Selling costs are $30,000 and their mortgage is $200,000. Their other taxable income is $80,000 after the standard deduction.

If they simply sell: the tax, with brackets stacked

A flat 20% on the $170,000 capital gain plus 25% on the $60,000 of recapture would be $49,000. That overstates the bill for this couple, because the rates depend on where each slice of gain lands on top of their $80,000:

• Recapture, $80,000 to $140,000: all within the brackets below 25%, so it is taxed at ordinary rates. $20,800 at 12% = $2,496, plus $39,200 at 22% = $8,624. Total $11,120.
• Capital gain, $140,000 to $310,000: above the $98,900 zero-rate ceiling and below the $613,700 top of the 15% bracket for 2026, so $170,000 at 15% = $25,500.
• NIIT: modified AGI of about $342,200 is $92,200 over the $250,000 threshold, so $92,200 × 3.8% = $3,504.
• State tax at the calculator’s 5% example rate: $230,000 × 5% = $11,500.

Total: $51,624, leaving $218,376 of the $270,000 after tax. For a higher-income couple (say $400,000 of other taxable income), most of the recapture hits the 25% cap, part of the gain reaches 20%, and NIIT applies to the full gain, so the federal bill rises to about $50,020 before state tax. The flat-rate shortcut is closer for high earners and too high for moderate ones. The calculator on this page uses the flat rates you enter; the keep or sell calculator does the stacked calculation for your filing status and income.

Full exchange

They buy a $550,000 replacement with a $280,000 loan and all $270,000 from the intermediary. Value is higher, debt is higher ($280,000 against $200,000 paid off) and all equity is reinvested, so there is no boot and all $230,000 of gain is deferred. That keeps $270,000 working instead of $218,376, about 24% more capital. The replacement’s basis is its $550,000 cost minus the $230,000 deferred gain: $320,000.

Partial exchange: they take $50,000 out

Instead they buy a $450,000 property with a new $230,000 loan, and the intermediary contributes $220,000 and sends them the remaining $50,000.

• Mortgage boot: they were relieved of $200,000 of debt and took on $230,000, so there is no net debt relief.
• Cash boot: $50,000. The extra $30,000 of new debt does not offset it, because cash received is never offset by new debt.
• Recognized gain: the lesser of boot ($50,000) or realized gain ($230,000) = $50,000. Deferred gain: $230,000 − $50,000 = $180,000.
• Tax on the $50,000: stacked on $80,000 of other income, it costs $8,920 at ordinary rates if characterized as recapture ($20,800 × 12% + $29,200 × 22%), or $7,500 at 15% if characterized as capital gain, plus $2,500 of state tax at 5%. Their modified AGI of about $162,200 stays under the NIIT threshold.
• Basis of the new property: $450,000 cost − $180,000 deferred gain = $270,000. On Form 8824 that is line 25: $240,000 old basis + $30,000 of net new debt + $50,000 recognized gain − $50,000 cash received.

They pay roughly $10,000 to $11,400 of tax to get $50,000 of cash now, and defer about $40,000 more than if they had sold outright. Whether that beats a full exchange depends on what the cash is for.

State rules and clawbacks

Most states with an income tax follow the federal deferral, but a state can keep a claim on gain built up while the property was within its borders. California is the best-known example. If you exchange California property for property in another state, you must file Form FTB 3840 for the year of the exchange and every later year until the California-source deferred gain is recognized (Revenue and Taxation Code sections 18032 and 24953). The source of the gain is fixed when it is realized, so when you eventually sell the out-of-state property in a taxable sale, California can tax the gain that accrued on the California property, even if you have moved away (FTB 3840 instructions). If you don’t file and don’t file a return, the FTB can estimate income and assess the tax. Other states have their own approaches and some have none. Check the revenue department of the state where the property you are selling is located.

What happens to the deferred tax later

The replacement property carries over your old basis, adjusted for any gain recognized and cash or debt added, so the deferred gain and recapture follow you. Suspended passive losses on the old property are generally not released, because an exchange is not a fully taxable disposition (IRS Publication 925); they carry over. Your options from there are to exchange again, to sell and pay the accumulated tax, or to hold until death. Heirs generally receive a basis equal to fair market value at death under IRC section 1014, which removes the deferred gain for income tax purposes. That is the idea behind “swap till you drop,” and it only works if keeping real estate for life suits you.

A former home acquired in an exchange has a further rule: you can’t use the section 121 home sale exclusion on a property acquired in a like-kind exchange within 5 years of acquiring it (IRS Publication 523). Report each exchange on Form 8824 with your return for the year you transferred the old property.

Common mistakes that sink an exchange

• Calling an intermediary after closing. Once the proceeds reach you or your account, the exchange is gone.
• Starting to look for replacements after the sale. Line up candidates before you list.
• Missing the return due date on a late-year sale because no extension was filed.
• Identifying property informally (an email to your agent) instead of in a signed document to the intermediary.
• Taking title in a different name or entity from the one that sold.
• Paying loan fees, repairs or prorated rent out of exchange funds, which creates taxable cash boot.
• Buying less, or borrowing less without adding cash, and being surprised by boot.
• Exchanging into a property you can’t afford or don’t want just to beat the 45-day deadline.

Not sure a 1031 is your best exit?

A 1031 exchange is one of several ways out of a rental. Our keep or sell rental property calculator compares an exchange with keeping, selling outright, a DST, seller financing and holding the property for your heirs, all in after-tax dollars, so you can see whether deferring the tax actually leaves you better off. For the selling-tax rules in more detail, see the rental property tax strategy guide, and for the ownership years, the rental tax strategies guide. Our 1031 exchange calculator guide walks through the calculator inputs.

This page is general information for tax year 2026, not tax or legal advice. Exchange rules have technical traps, and state rules differ. Run any real transaction past a CPA, a tax attorney and a qualified intermediary before you sign a sale contract.