1031 exchange calculator
Boot, recognized gain, deferred gain, and replacement property basis — the four numbers that actually decide what a like-kind exchange defers and what it doesn't. Calculate instantly; a general reference tool, not tax advice.
Relinquished property (the one you sold)
Replacement property (the one you bought)
Deferred gain
$231,000
Recognized gain (taxable now)
$0
Replacement property basis
$469,000
Realized gain on the relinquished property is $231,000. No boot was received, so the full gain is deferred — nothing is taxable this year. Identification is due in 45 days from closing; the replacement purchase must close within 180 days.
What a 1031 exchange defers
Section 1031 doesn't erase tax — it postpones it, and understanding exactly what carries forward is most of what this calculator exists to show.
When an investment or business real property sells for more than its adjusted basis, the gain is normally taxable in that year — capital gains tax on the appreciation, plus depreciation recapture on however much depreciation was claimed along the way. A 1031 exchange lets that entire tax bill roll forward into a replacement property instead, as long as the transaction is structured correctly: the same taxpayer, real property for real property, held for investment or business use on both ends, moving through a qualified intermediary rather than the investor's own hands.
"Deferred" is the operative word, not "eliminated." The tax that would have been due gets built into the replacement property's lower basis, and it resurfaces if that property is later sold in an ordinary taxable sale. Many investors defer repeatedly across several properties over years or decades — sometimes until death, at which point an heir\u2019s basis typically steps up to fair market value, permanently eliminating the deferred gain rather than merely postponing it again. That estate-planning angle is a genuine part of why 1031 exchanges remain popular, though it depends on estate tax rules well outside what this calculator models.
The realized gain formula
Realized gain is the ceiling — the maximum amount of gain that could ever become taxable in this transaction. Whether all of it, some of it, or none of it actually becomes taxable this year depends entirely on boot, covered next.
How to calculate 1031 exchange boot
Boot comes in two flavors that get calculated separately, then combined — this is the two-test framework the calculator above runs automatically.
Cash boot = the amount realized on the relinquished property minus the replacement property’s purchase price, floored at zero. If the replacement costs less than the net proceeds from the sale, the shortfall is boot — it means not all of the sale proceeds went back into like-kind property.
Gross mortgage boot = the mortgage payoff on the relinquished property minus the new mortgage on the replacement property, floored at zero. Taking on less new debt than was paid off is treated as if that difference in debt relief were cash received — unless offset.
Additional cash the investor brings to the replacement closing, beyond the exchange proceeds, offsets mortgage boot dollar for dollar. It does not work in the other direction — taking on more new debt does not offset or reduce cash boot. This asymmetry catches more investors off guard than any other part of the boot calculation.
Cash boot plus mortgage boot (after the cash offset) equals total boot — the figure compared against realized gain to determine recognized gain, next.
In practice, most investors avoid boot entirely by following a simple rule: buy a replacement property equal to or greater in both price and debt than the relinquished property. Trading up on both dimensions at once is the surest way to a fully deferred exchange, since neither test above can produce a positive boot figure when both the price and the debt increase.
Recognized vs. deferred gain — the 1031 exchange capital gains calculation
Recognized gain — the actual 1031 exchange capital gains figure that ends up on a tax return — is always the smaller of total boot or realized gain, never more. This has a genuinely useful practical implication: boot can never trigger more tax than the transaction actually made in profit. A property sold at a loss, or with minimal appreciation, produces little or no recognized gain even if boot was received, simply because there isn't much realized gain to tax in the first place.
Deferred gain is what's left: realized gain minus recognized gain. It doesn't disappear — it becomes embedded in the replacement property's basis, covered in the basis section further down, which is what determines the starting point for depreciation on the new property and the gain calculation whenever it's eventually sold.
A worked example
An investor sells a rental duplex for $650,000, paying 6% in selling costs ($39,000), for an amount realized of $611,000. The property's adjusted basis is $380,000 (original cost plus improvements, minus depreciation taken). Realized gain: $611,000 − $380,000 = $231,000. An existing $280,000 mortgage is paid off at closing.
The investor identifies a replacement fourplex at $700,000, financed with a new $320,000 mortgage, adding no extra cash beyond the exchange proceeds.
Cash boot (price test): amount realized ($611,000) minus replacement price ($700,000) = a negative number, so cash boot = $0 — the replacement property costs more than the net sale proceeds, satisfying the price test with room to spare.
Mortgage boot: old mortgage payoff ($280,000) minus new mortgage ($320,000) = a negative number, so gross mortgage boot = $0 as well — the new debt is actually higher than the old debt.
Total boot: $0. Since no boot was received, recognized gain is $0 — the full $231,000 realized gain is deferred, and nothing is taxable this year. Replacement property basis: $700,000 purchase price − $231,000 deferred gain = $469,000, the starting point for depreciation on the new fourplex.
Change one input and the result flips: if the investor had instead bought a smaller replacement at $580,000 with a $250,000 new mortgage, cash boot would be $611,000 − $580,000 = $31,000, and mortgage boot would be $280,000 − $250,000 = $30,000 (no additional cash to offset it), for total boot of $61,000. Recognized gain would be min($61,000, $231,000) = $61,000 — fully taxable this year — with the remaining $170,000 still deferred into the smaller replacement property's basis.
Partial 1031 exchanges
The second scenario above — buying a smaller, less-leveraged replacement and accepting $61,000 of recognized gain — is a partial 1031 exchange, and it's a completely legitimate structure, not a mistake or a failed exchange. Investors choose it deliberately when they want to pull some equity out as cash (to pay off other debt, fund a renovation, or simply take some chips off the table) while still deferring most of the gain on the rest.
The math doesn't change — it's the same two-test boot calculation and the same "recognized gain equals the lesser of boot or realized gain" rule covered above. What changes is the goal: instead of structuring the replacement purchase specifically to avoid boot, a partial exchange accepts a calculated, bounded amount of it in exchange for liquidity, with the calculator above showing exactly how much tax that liquidity costs before the decision is final.
Replacement property basis, step by step
This is the number that determines two separate things going forward: the depreciation schedule on the replacement property (basis, not purchase price, is what gets depreciated), and the gain calculation whenever the replacement is eventually sold outright. A lower basis means smaller depreciation deductions each year and a larger taxable gain at eventual sale — the deferred tax is genuinely still there, just moved forward and, in a sense, spread differently across future years than it would have been if paid immediately.
In the first worked-example scenario above, a $700,000 purchase price with $231,000 of deferred gain produces a $469,000 basis — $231,000 lower than what a cash buyer paying the identical $700,000 for the identical property would carry. Two investors owning the same fourplex, purchased the same day for the same price, can have meaningfully different depreciation deductions and meaningfully different tax bills at a future sale, purely because one of them exchanged into it and one didn't.
The 45- and 180-day deadlines
From the closing date of the relinquished property, the investor has 45 calendar days (not business days) to identify potential replacement properties in writing to the qualified intermediary — typically up to three properties of any value, or more under alternate identification rules with value limits.
The replacement property must actually close within 180 calendar days of the relinquished property’s closing, or by the due date of the investor’s tax return for that year (including extensions), whichever is earlier. Both deadlines run concurrently from the same start date, not sequentially — the 45 days are not added on top of the 180.
Outside specific IRS relief for federally declared disasters, these deadlines are fixed and essentially non-negotiable. Missing either one converts the transaction into an ordinary taxable sale, with the full realized gain recognized in that tax year.
What no longer qualifies
Before the Tax Cuts and Jobs Act, Section 1031 covered a wide range of business property — equipment, vehicles, franchise licenses, even artwork and collectibles held for investment, alongside real estate. For exchanges completed after December 31, 2017, that scope narrowed to real property only. A rental building still qualifies; the appliances, furniture, or equipment inside it generally don't, and a business sale that bundles real estate with equipment and goodwill needs to separate the real property component out for 1031 treatment to apply to that portion at all.
This calculator, and the worked examples above, assume a straightforward real property exchange — land and buildings only. A transaction that mixes real and personal property needs that split handled separately, ideally with a qualified intermediary and CPA involved before the relinquished property even closes.
State tax treatment, and buying before you sell
Federal deferral is only half the picture for an investor selling California real estate. Since 2014, California has required an annual informational filing — Form FTB 3840 — for any exchange where the relinquished property is in California and the replacement property is out of state. California's deferral tracks separately from the federal one: the state keeps a claim on the California-source gain and taxes it whenever the replacement property is eventually sold in a taxable transaction, even if the investor has since moved out of California entirely. This is commonly called California's "clawback" rule, and it isn't optional reporting — skipping the annual filing exposes the investor to FTB penalties on top of whatever tax is eventually due.
Separately, a standard exchange assumes the relinquished property sells first and the replacement closes afterward, within the 45- and 180-day windows above. A reverse exchange flips that order — the replacement property closes first, before the relinquished property has sold — using a parking arrangement under Revenue Procedure 2000-37, where an Exchange Accommodation Titleholder holds title to one of the two properties until the other side of the trade closes. Reverse exchanges are considerably more complex and expensive to run than a standard delayed exchange, and they still operate on the same 45- and 180-day clock, just measured from the parking arrangement's start rather than the relinquished property's closing. They're worth knowing exist, not something to structure without a QI experienced in this specific variant.
Pairing this with depreciation recapture
When boot produces recognized gain, that gain isn't taxed as one uniform rate — it's characterized in the same stacking order as an ordinary taxable sale: depreciation recapture first, up to however much depreciation was actually taken on the relinquished property, then the remainder as capital gain. The calculator above estimates that split using the depreciation figure entered, but the actual dollar amount of tax owed on each layer (ordinary Section 1245 recapture, unrecaptured Section 1250 gain capped at 25%, long-term capital gains at 0/15/20%, and the 3.8% Net Investment Income Tax) is a separate calculation.
Once this calculator shows a recognized-gain figure above zero, run that amount through the depreciation recapture calculator to see the actual tax bill on it — this page answers "how much is taxable," that one answers "how much tax is actually owed on that amount."
Common mistakes
Even briefly depositing exchange proceeds into the investor’s own account (constructive receipt) disqualifies the entire exchange — funds must move from the QI’s escrow directly to the replacement closing.
Focusing only on price and reinvesting all cash proceeds while taking on significantly less new debt than was paid off still creates mortgage boot — the price test passing doesn’t mean the exchange is automatically fully deferred.
The offset rule runs one direction only: extra cash offsets mortgage boot, but extra debt never offsets cash boot. See the two-test framework above.
A common failure point — securing a strong replacement property candidate before the relinquished property even closes, rather than starting the search at day one of the 45, meaningfully reduces this risk.
Since the 2017 rule change, only real property qualifies — attempting to 1031 exchange equipment, vehicles, or a business’s goodwill alongside real estate no longer works for those non-real-property components.
A QI’s fee is a small cost relative to what it protects — a delayed exchange structured without one, or with proceeds passing through the investor’s hands, generally fails entirely, turning the whole transaction into an ordinary taxable sale.
Frequently asked questions
A 1031 exchange (named for Internal Revenue Code Section 1031) lets an investor sell business or investment real property and defer the capital gains tax that would otherwise be due, by rolling the proceeds into a 'like-kind' replacement property instead of cashing out. The tax isn't eliminated — it's deferred, carried forward into the replacement property's lower basis, until that property is eventually sold in a taxable transaction (or exchanged again).
Boot is anything of value received in the exchange that isn't like-kind real property — cash pulled out at closing (cash boot), or a reduction in mortgage debt not offset by new debt or additional cash (mortgage boot). Boot doesn't disqualify the exchange; it simply triggers recognized (taxable) gain up to the amount of boot received, while the rest of the gain stays deferred.
No — Section 1031 applies only to property held for investment or business use, not personal residences. A primary residence has its own separate tax break (the Section 121 exclusion, up to $250,000 of gain for a single filer or $500,000 for a married couple filing jointly, on a home that meets the ownership-and-use test), which works differently and isn't modeled by this calculator.
It depends on whether the acquisition is structured as real property. Since the Tax Cuts and Jobs Act took effect for exchanges completed after December 31, 2017, Section 1031 applies only to real property — land and buildings — not to personal property, equipment, vehicles, or the operating business itself. Real estate held for a car wash or hotel business can qualify; the equipment, brand, and goodwill of the business generally do not.
The exchange fails, and the sale is treated as a normal taxable sale — the full realized gain becomes recognized in the year of sale, with no partial credit for having tried. The 45-day identification window and the 180-day closing window are both hard IRS deadlines with essentially no extensions outside a small number of federally declared disaster situations, which is why working with an experienced qualified intermediary from before the relinquished property even closes matters as much as the exchange math itself.
Yes, in almost every practical case. The exchange proceeds must never pass through the investor's own hands or bank account between the sale of the relinquished property and the purchase of the replacement — actual or constructive receipt of the cash disqualifies the exchange entirely. A QI holds the funds in escrow between the two closings, prepares the exchange agreement, and is a required part of the structure for a standard delayed exchange (the far more common of the two allowed structures, the other being a same-day simultaneous exchange).
A partial exchange is one where the investor deliberately takes out some cash or reduces debt rather than fully reinvesting — accepting boot, and therefore some recognized (taxable) gain, in exchange for pulling cash out of the deal. It's a legitimate, common structure, not a failed exchange: the like-kind portion still defers tax normally, and only the boot portion is taxed. The calculator above models exactly this — enter a replacement price below the relinquished property's net sale price to see the resulting cash boot and recognized gain.
It remains available under current federal law. It has been discussed in various tax-reform proposals over the years and was narrowed once already, by the 2017 Tax Cuts and Jobs Act, which removed personal property from eligibility. As of this writing it continues to apply to real property; confirm current law with a CPA or tax attorney before relying on it for a specific transaction, since tax legislation changes independent of any one article.
This is a general reference calculator, not tax or legal advice — work with a qualified intermediary and a CPA or tax attorney before relying on these figures for an actual exchange. See also the depreciation recapture calculator for the tax owed on any recognized gain.
Glossary:Depreciation Recapture
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