Section 1031 Exchange Calculator

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.