Section 1031 Exchange Calculator
Calculate the tax deferral, boot, recognized gain, and new basis for an IRS Section 1031 like-kind exchange (real property held for investment or business). Updated for 2026 IRS rules and federal capital gains rates.
What Is a Section 1031 Exchange?
A Section 1031 exchange — named after IRC §1031 — lets a real estate investor defer federal capital gains tax and depreciation recapture by selling investment property and reinvesting the proceeds into "like-kind" replacement property. Per the IRS Like-Kind Exchanges guidance, since the 2017 Tax Cuts and Jobs Act, §1031 applies only to real property held for productive use in a trade, business, or investment — personal residences and personal-use property are excluded.
1031 Exchange Rules — 45-Day and 180-Day Deadlines
Two strict timelines apply per IRS Form 8824 instructions:
- 45-day identification window. From the date the relinquished property closes, you have 45 calendar days to identify replacement property in writing (delivered to your Qualified Intermediary).
- 180-day exchange window. The replacement property must close within 180 days of the original sale, OR the due date of your tax return (including extensions), whichever is earlier.
Miss either deadline and the entire exchange fails — taxes become due. A Qualified Intermediary (QI) is mandatory; you cannot touch the cash proceeds yourself.
Boot — When Tax Becomes Due
"Boot" is anything you receive in the exchange that isn't like-kind property. Boot triggers immediate recognition of gain up to the boot amount. Two types:
- Cash boot: Any cash received from the sale that isn't reinvested.
- Mortgage boot (debt relief): If your new mortgage is smaller than the one paid off, the difference is treated as boot.
To fully defer, the rule of thumb is: buy equal or up on price, equity, and debt. The recognized gain equals the lesser of total boot or total realized gain. Depreciation recapture (currently 25% under §1250 for real property) applies first to recognized gain.
1031 Exchange — Pros, Cons, and Alternatives
Pros: Deferral of federal capital gains (up to 20%), state tax (up to 13.3% in CA), and depreciation recapture (25%). Lets investors compound wealth tax-free across decades. Step-up in basis at death can permanently eliminate the deferred tax (currently — proposed 2026 reform may change this).
Cons: Complex paperwork, QI fees ($800–$1,500 typically), strict deadlines, no like-kind for non-real-estate. Property must be held "for investment" — flippers don't qualify.
Alternatives: Delaware Statutory Trust (DST), Opportunity Zone fund (OZ), installment sale (§453), Qualified Opportunity Fund. IRS Opportunity Zones defer + reduce gains for 10+ year holds.
Sources: IRS Publication 544, IRS Form 8824 instructions, IRC §1031 (irs.gov), §1250 depreciation recapture rules. Consult a CPA or tax attorney for your specific situation. Last updated 2026-07-03.
Reverse 1031 Exchange: Buying Replacement Property First
A reverse 1031 exchange lets you acquire the replacement property before selling the relinquished one — useful in tight seller's markets where the ideal replacement listing appears before your current property closes. It is governed by IRS Rev. Proc. 2000-37 (safe-harbor). Structure: an "Exchange Accommodation Titleholder" (EAT) — usually the QI or a related entity — takes title to either the replacement or relinquished property as a parked asset until the swap can be completed. The 45-day identification deadline still applies to whichever leg is parked, and the 180-day completion deadline is measured from the EAT acquisition date. Reverse exchanges cost 2-4x more than forward exchanges (QI fees $10K-$20K vs $800-$1,500) because they require entity setup, insurance, and financing coordination. Only worth it when the replacement window justifies the extra cost — a listing you cannot afford to lose.
Frequently Asked Questions
What is a Section 1031 exchange?
A 1031 exchange (named after IRC Section 1031) lets investors swap real estate investment property for "like-kind" property and defer federal capital gains tax and depreciation recapture. Since 2018, only real property qualifies — personal property exchanges no longer qualify.
What are the 45-day and 180-day rules?
You must identify replacement property in writing within 45 days of selling the relinquished property, and close on it within 180 days (or your tax return due date, whichever is earlier). Both deadlines are strict — missing either fails the entire exchange.
Do I have to use a Qualified Intermediary?
Yes. You cannot touch the sale proceeds — they must be held by a Qualified Intermediary (QI), also called an exchange accommodator. QI fees range from $800–$1,500 per exchange. Choosing a reputable, bonded QI is critical.
What is "boot" and when is it taxable?
Boot is anything received in the exchange thats not like-kind property — usually cash boot or mortgage boot (when your new mortgage is smaller than the one paid off). Boot triggers immediate recognition of gain up to the boot amount. To fully defer, "buy equal or up" on price, equity, and debt.
Does §1031 work for vacation homes or primary residence?
No. §1031 only applies to property held "for productive use in a trade or business or for investment." Primary residences use the §121 exclusion ($250k single / $500k married). Vacation homes can qualify only if rented out and held for investment per Rev. Proc. 2008-16 safe harbor.
What about depreciation recapture?
Section 1250 depreciation recapture (currently 25% federal rate for real property) applies first to any recognized gain (boot). The remaining gain is taxed at long-term capital gains rates (0/15/20% federal in 2026 per IRS brackets). State tax applies on top.
What is a reverse 1031 exchange?
A reverse 1031 exchange lets you buy the replacement property before selling the relinquished one, using an Exchange Accommodation Titleholder (EAT) to park one of the properties. Governed by IRS Rev. Proc. 2000-37. Useful when the ideal replacement listing appears before your current property closes. 45-day identification and 180-day completion deadlines still apply. Costs 2-4x more than forward exchanges ($10K-$20K in QI/EAT fees vs $800-$1,500). Source: IRS Rev. Proc. 2000-37.
Can I do a 1031 exchange between different types of real estate?
Yes. "Like-kind" for real property is broadly interpreted — you can exchange an apartment building for raw land, a warehouse for a retail strip mall, or a single-family rental for a commercial office. All US real estate held for investment/business qualifies as like-kind to any other US real estate held for investment/business. Foreign real estate is NOT like-kind to US real estate. Personal residences and property held primarily for sale (flippers) do not qualify. Source: IRS Publication 544.