DayCents

Investing

1031 Exchange Calculator

Sell an investment property outright and the tax arrives from several directions at once: depreciation recaptured at 25%, the remaining gain at capital-gains rates, the 3.8% net investment income tax, and state tax. A 1031 exchange defers all of it if you reinvest fully into another property.

Agent commission, closing costs, transfer tax.

Original price plus improvements, minus depreciation taken.

Tax deferred by exchanging

$137,100

Kept invested instead of paid — this capital keeps compounding.

A 1031 exchange has strict deadlines: identify replacement property within 45 days of the sale and close within 180, using a qualified intermediary who holds the proceeds — you cannot touch the cash. Miss either deadline and the entire deferred bill comes due. This is a step to take with a tax professional, not alone.

Realized gain
$450,000
Depreciation recapture tax
$37,500
Capital gains tax
$60,000
Net investment income tax
$17,100
State tax
$22,500
Proceeds available to reinvest
$750,000
If sold$137.1K
Depreciation recapture$37,50027%
Capital gains$60,00044%
NIIT$17,10012%
State$22,50016%

How this calculator works

Realized gain is sale price less selling costs less adjusted basis. Depreciation taken is recaptured first at its own rate, and the remaining gain is taxed at the capital-gains rate. The net investment income tax and state tax apply to the full gain. A full exchange defers the entire total; a straight sale pays it, leaving proceeds net of tax to reinvest.

The net investment income tax and state tax are applied to the whole gain as a simplification — the actual NIIT depends on modified AGI thresholds, and state treatment of 1031 varies, with a few states clawing back deferred gains. Partial exchanges with boot are not modelled. Given the deadlines and complexity, use a qualified intermediary and a tax advisor.

Try an example

Frequently asked questions

What is a 1031 exchange?

A provision letting you defer all tax on the sale of an investment property by reinvesting the proceeds into another like-kind property. Done repeatedly, it can defer tax indefinitely — and a step-up in basis at death can eliminate it entirely for heirs. It applies only to investment or business property, never a primary home.

What are the 1031 deadlines?

Two hard clocks from the sale date: 45 days to identify replacement property in writing, and 180 days to close on it. Both are strict, with no extensions except certain federally declared disasters. A qualified intermediary must hold the proceeds throughout — if the cash touches your account, the exchange fails.

What is depreciation recapture?

The depreciation you deducted each year lowered your taxable income, and the IRS reclaims that benefit on sale by taxing the depreciated amount at up to 25%. It applies whether or not the property gained value, which is why a modest-looking sale can carry a surprisingly large bill.

Do I have to reinvest everything?

To defer the full tax, yes — the replacement property must be of equal or greater value and you must reinvest all the proceeds. Take some cash out, called boot, and that portion is taxed. This calculator models the full-deferral and no-deferral cases; partial exchanges fall in between.

Does a 1031 exchange avoid tax or just delay it?

It delays it — the deferred gain carries into the basis of the new property. But deferral has real value, since the untaxed money keeps compounding, and if you hold until death, heirs receive a stepped-up basis that wipes out the deferred gain. That combination is why it is a cornerstone of real-estate investing.

Disclaimer: DayCents provides this calculator for educational purposes only. Results are estimates based on your inputs and the stated assumptions — they are not financial advice, a quote, or an offer of credit. Consult a qualified financial professional before making major money decisions.