🏠 Relinquished Property (Property You Are Selling)
Gross contract sale price
Enter the sale price.
Commissions, closing costs, attorney fees
Enter expenses (0 if none).
Debt assumed by the buyer at closing
Enter mortgage (0 if none).
What you originally paid for the property
Enter original purchase price.
Additions, renovations, major upgrades
Enter improvements (0 if none).
All depreciation deducted over ownership period
Enter depreciation (0 if none).
🏗 Replacement Property (Property You Are Buying)
FMV of the like-kind replacement property
Enter replacement property price.
New debt on replacement property
Enter new mortgage (0 if none).
Extra cash you brought to close the purchase
Enter cash added (0 if none).
Long-term capital gains rate for this gain
Select your rate.
Capital Gains Tax Deferred
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⚠️ Disclaimer: This calculator uses IRC §1031 formulas from Form 8824 and Rev. Rul. 72-456. Actual exchange results depend on your specific transaction, depreciation recapture type, state taxes, and qualified intermediary requirements. Always consult a qualified 1031 exchange professional and CPA before proceeding.
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Sources & Methodology
All formulas verified against IRC §1031, IRS Form 8824 and instructions, Treasury Regulation §1.1031(k)-1, and IRS Revenue Ruling 72-456 (selling expense treatment).
IRS Form 8824 — Like-Kind Exchanges
Official IRS form for reporting 1031 exchanges. All realized gain, boot, recognized gain, deferred gain, and new basis calculations in this calculator follow the Form 8824 worksheet methodology.
IRS Publication — Like-Kind Exchanges Under IRC Section 1031
IRS guidance confirming that recognized gain equals the lesser of boot received or realized gain, the 45-day identification and 180-day exchange windows, and the qualified intermediary requirement.
Treasury Regulation §1.1031(k)-1 — Treatment of Deferred Exchanges
Defines deferred exchange requirements including the identification period (45 days), the exchange period (180 days), qualified intermediary rules, and safe harbor provisions.
Core Formulas (IRC §1031 / Form 8824):
Adjusted Basis = Purchase Price + Improvements − Accumulated Depreciation
Amount Realized = Sale Price + Old Mortgage − Selling Expenses
Realized Gain = Amount Realized − Adjusted Basis
Cash Boot Received = max(0, Net Proceeds − Cash Used in Replacement)
Mortgage Boot = max(0, Old Mortgage − New Mortgage) − Cash Added
Total Boot = Cash Boot + max(0, Mortgage Boot)
Recognized Gain = min(Total Boot, Realized Gain) [never negative]
Deferred Gain = Realized Gain − Recognized Gain
New Basis = Adjusted Basis − Boot Received + Recognized Gain
Tax Deferred = Deferred Gain × Capital Gains Rate
Adjusted Basis = Purchase Price + Improvements − Accumulated Depreciation
Amount Realized = Sale Price + Old Mortgage − Selling Expenses
Realized Gain = Amount Realized − Adjusted Basis
Cash Boot Received = max(0, Net Proceeds − Cash Used in Replacement)
Mortgage Boot = max(0, Old Mortgage − New Mortgage) − Cash Added
Total Boot = Cash Boot + max(0, Mortgage Boot)
Recognized Gain = min(Total Boot, Realized Gain) [never negative]
Deferred Gain = Realized Gain − Recognized Gain
New Basis = Adjusted Basis − Boot Received + Recognized Gain
Tax Deferred = Deferred Gain × Capital Gains Rate
1031 Exchange Guide 2026: Gain, Boot, Basis & Tax Savings
A 1031 like-kind exchange is one of the most powerful tax deferral strategies in real estate investing. By reinvesting the proceeds from a sale into a replacement property within strict IRS timelines, you can defer potentially hundreds of thousands of dollars in capital gains tax — indefinitely, or until a future taxable sale. Understanding the three key numbers — realized gain, recognized gain, and new basis — is essential to structuring an exchange that achieves zero tax or minimal tax.
Realized Gain vs Recognized Gain vs Deferred Gain
Realized Gain = Amount Realized − Adjusted Basis
Recognized Gain = min(Boot Received, Realized Gain)
Deferred Gain = Realized Gain − Recognized Gain
Realized gain is the total economic profit from the exchange — what you would pay tax on in a regular sale. Recognized gain is the taxable portion you cannot defer (triggered by boot). Deferred gain is the tax-free amount that carries forward into the new property's lower basis.
What Is Boot and How Does It Trigger Tax?
Boot is any non-like-kind value you receive in the exchange. There are two types that both trigger recognized (taxable) gain:
| Boot Type | Definition | How to Avoid It |
|---|---|---|
| Cash Boot | Cash or property you pocket from sale proceeds rather than reinvesting | Reinvest 100% of net proceeds into replacement property |
| Mortgage Boot | Reduction in debt (old mortgage > new mortgage = debt relief = boot) | Take on equal or greater mortgage on replacement property, or add cash |
💡 Key rule: To completely defer all capital gains tax, you must: (1) reinvest all net equity into the replacement property, AND (2) carry equal or greater debt on the replacement property. Meeting just one of these conditions still results in some recognized (taxable) gain if the other condition is not met.
How New Basis Is Calculated
The new replacement property basis preserves the deferred tax. It is calculated as: New Basis = Old Adjusted Basis + Recognized Gain + Additional Cash Paid − Boot Received. Because the basis is lower than the purchase price of the replacement property, when you eventually sell, you will pay tax on both the current gain and all previously deferred gain. This is how the IRS ensures the tax deferral — not forgiveness — is eventually paid.
Critical 1031 Exchange Deadlines
| Deadline | Time Allowed | What Must Happen |
|---|---|---|
| Identification Period | 45 calendar days | Written identification of replacement property(ies) to qualified intermediary |
| Exchange Period | 180 calendar days | Close on the replacement property (runs concurrently, not consecutively) |
| Tax Filing Deadline | Due date of tax return | File Form 8824 with your tax return for the year of exchange |
Three Property Identification Rules
You may identify replacement properties under any of these three rules — you only need to satisfy one:
- 3-Property Rule: Identify up to 3 properties regardless of their value. Most common and simplest.
- 200% Rule: Identify any number of properties as long as their combined FMV does not exceed 200% of the relinquished property FMV.
- 95% Rule: Identify any number of properties if you actually acquire at least 95% of the total identified FMV. Very rarely used.
Frequently Asked Questions
A 1031 exchange allows real estate investors to defer capital gains tax when selling investment property by reinvesting proceeds into a like-kind replacement property within IRS-specified timelines. Under IRC Section 1031, if structured correctly with a qualified intermediary, you can defer all capital gains tax and depreciation recapture indefinitely. Since the Tax Cuts and Jobs Act (2018), only real property qualifies — personal property and equipment are excluded.
Boot is any non-like-kind value received in the exchange that triggers taxable gain. Two types: (1) Cash boot — cash pocketed from sale proceeds or not reinvested; (2) Mortgage boot — if the replacement property mortgage is less than the relinquished property mortgage, the debt reduction is treated as boot received. Recognized gain equals the lesser of total boot or total realized gain.
Realized Gain = Amount Realized minus Adjusted Basis. Amount Realized = Sale price + old mortgage assumed by buyer minus selling expenses. Adjusted Basis = Original purchase price + capital improvements minus accumulated depreciation. This is the total economic gain you would owe tax on without a 1031 exchange.
Both run from the date you close on the relinquished property. Within 45 days: submit written identification of replacement properties to your qualified intermediary. Within 180 days: close on the replacement property. These run simultaneously — you do not get 225 days total. Missing either deadline disqualifies the exchange entirely.
No. Your primary residence is not held for investment or productive use in a trade or business, so it does not qualify. Only investment property (rentals, commercial properties, raw land held for investment) and property used in a trade or business qualify. However, if a property was converted from a rental to a primary residence, complex rules under IRC Section 121 and 1031 may still provide partial tax benefits.
A qualified intermediary (QI) is a neutral third party required to facilitate a 1031 exchange. You cannot receive the sale proceeds yourself — even briefly — without disqualifying the exchange. The QI holds the proceeds between the sale and purchase. QIs cannot be your attorney, accountant, real estate agent, or any party who acted as your agent within 2 years of the exchange. QI fees typically range from $750 to $2,500 for a standard forward exchange.
In a full exchange with no boot, all gain — including depreciation recapture (unrecaptured Section 1250 gain, taxed at up to 25%) — is fully deferred. The depreciation carries over into the new property's lower basis. In a partial exchange with boot, recognized gain is first allocated to depreciation recapture before regular capital gain. All deferred depreciation eventually becomes taxable when the property is sold in a taxable transaction.
New Basis = Old Adjusted Basis minus Boot Received plus Recognized Gain. This is always lower than the replacement property's fair market value by exactly the amount of deferred gain. For example, if you defer $300,000 in gain on a $700,000 replacement property, your new basis is $400,000, not $700,000. Future depreciation is calculated on this lower basis, and future gain calculations also use this lower starting point.
Mortgage boot occurs when the replacement property carries less debt than the relinquished property. The IRS treats the reduction in debt as cash received (boot). Example: old mortgage $300,000, new mortgage $200,000 = $100,000 mortgage boot. This $100,000 may trigger taxable recognized gain. Mortgage boot can be offset by adding cash to the replacement property purchase — the cash addition effectively replaces the debt reduction.
Yes — through continued 1031 exchanges (keeping deferring into new properties), through a charitable donation of the appreciated property to a charity or charitable remainder trust (which then sells tax-free), or through the step-up in basis at death. If you hold an investment property until death, your heirs receive a stepped-up basis to fair market value under IRC Section 1014, effectively eliminating all deferred gains. This makes the 1031-exchange-until-death strategy one of the most powerful long-term estate planning techniques.
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