1031 Exchange Calculator

The 1031 Exchange Calculator models the tax arithmetic of a Section 1031 like-kind exchange: enter the relinquished property's price, selling expenses, adjusted basis, and debt, plus the replacement property's price and debt, and it computes the realized gain, any cash boot and mortgage boot, the gain you must recognize now, the gain deferred, and the basis your replacement property carries forward.

How It Works

$\text{Realized gain}=\max\big(0,\ (\text{Price}-\text{Expenses})-\text{Adjusted basis}\big)\qquad \text{Recognized gain}=\min(\text{Realized gain},\ \text{Total boot})$

$\text{New basis}=\text{Replacement price}-\text{Deferred gain}$

Boot is the value you fail to roll forward. Cash boot is the equity you take out (relinquished equity exceeding replacement equity); mortgage boot is debt relief not replaced by new debt or offset by added cash. Gain is recognized up to the boot received and deferred beyond it, and the deferred gain reduces the replacement property's basis, which is where it waits, untaxed but not forgiven.

Parameters

| Input | Required | Meaning | |---|---|---| | Relinquished price / expenses | Yes | Sale price and selling costs of the old property | | Adjusted basis | Yes | Your tax basis in the old property | | Relinquished debt | Yes | Mortgage on the old property | | Replacement price / debt | Yes | Cost and mortgage of the new property |

Worked examples

Full deferral: sell for $500,000 with$20,000 of expenses, a $300,000 basis, and$250,000 of debt; buy a $550,000 replacement with$300,000 of debt. Net sales price $480,000; realized gain **$180,000**; relinquished equity $230,000 against replacement equity$250,000, so cash boot is $0; the replacement debt is higher, so mortgage boot is$0; recognized gain $0**, deferred gain **$180,000, and the new basis is $550,000 -$180,000 = **$370,000**. **The mortgage-boot trap:** keep everything the same but buy a$460,000 replacement with only $230,000 of debt. Equities now match at$230,000, so cash boot is still $0, but debt fell by$20,000 without added cash, producing **$20,000 of mortgage boot**: recognized gain$20,000, deferred $160,000, new basis$300,000. Trading down in debt is taxable even when you pocket no cash, the most commonly missed point in exchange planning.

The rules the arithmetic assumes you will satisfy elsewhere

Section 1031 defers gain on real property held for investment or business use exchanged for like-kind real property (personal residences and property held for sale do not qualify, and since 2018 the provision covers real property only). The mechanics are strict and none of them appear in the calculator's inputs: the proceeds must pass through a qualified intermediary (taking the cash yourself, even briefly, can collapse the exchange), replacement property must be identified within 45 days of the sale and acquired within 180 days, and the same taxpayer must stand on both sides. The equal-or-up rules the worked examples illustrate follow from the boot math: to defer everything, buy at equal or greater value, take on equal or greater debt (or offset a debt reduction with added cash), and spend all the equity. Related-party exchanges carry a two-year holding requirement, and state treatment varies, with some states clawing back deferred gain on out-of-state replacements.

Depreciation, recapture, and the deferred bill

The calculator's gain is a single number; a real exchange splits it. Depreciation previously claimed is embedded in your adjusted basis (which is why the basis input matters so much), and on a fully deferred exchange the recapture character carries into the replacement property through the reduced basis rather than being taxed immediately, while any recognized boot is generally taxed with recapture character first. The deferred gain is not erased: the reduced new basis means a later outright sale recognizes the old gain plus the new one, which is why serial exchangers speak of "swap till you drop," the basis step-up at death being the only clean exit the strategy contemplates. Model both the exchange and the eventual sale before assuming deferral equals saving; at changed tax rates or in a lower-income year, paying now can occasionally win.

Limitations

An educational model of the boot and basis arithmetic. It does not determine eligibility, model the qualified-intermediary process or the 45/180-day deadlines, handle partial exchanges of mixed-use property, related-party rules, reverse or improvement exchanges, depreciation recapture character, or state taxes and clawbacks. Real exchanges are executed with a qualified intermediary and tax counsel engaged before the relinquished property closes.

Frequently Asked Questions

What exactly is boot?

Anything of value you receive in the exchange that is not like-kind real property: cash kept back, net debt relief, or non-qualifying property. Boot does not disqualify the exchange; it makes gain taxable up to the boot's value, which the calculator separates into its cash and mortgage components.

Why is my replacement basis lower than what I paid?

Because the deferred gain is stored in the basis: you paid $550,000 in the example but carry a$370,000 basis, the $180,000 difference being exactly the untaxed gain. A future sale computes gain from that reduced basis, settling the deferred amount then.

Can I exchange into a cheaper property and still defer everything?

Not with these mechanics: a lower price almost always creates equity or debt boot somewhere, as the second example shows. Partial deferral is normal and often still worthwhile; the calculator's job is to price the recognized slice precisely so the decision is informed rather than assumed.