Why Use a 1031 Exchange Calculator

Selling an investment property can trigger multiple layers of tax liability. Federal capital gains tax generally applies at rates of 15% or 20%, depending on income. Depreciation deductions are also generally subject to recapture at a rate of up to 25%. Most states add their own income tax on the gain and investors with modified adjusted gross income above certain thresholds may owe an additional 3.8% net investment income tax (NIIT).

A 1031 exchange under IRC Section 1031 may allow investors to defer all of these taxes by reinvesting the proceeds into like-kind replacement property. The total amount deferred depends on several factors: the original purchase price, sale price, depreciation claimed, holding period, income bracket, and state of residence.

The calculator on this page estimates total tax liability on a straight sale and compares it to the amount that may potentially be deferred through a 1031 exchange. Enter property details and tax parameters to see a side-by-side comparison.

These estimates are for educational purposes only. Tax situations vary, and you should consult a qualified tax professional before making decisions based on these numbers. For a broader overview of the exchange process, see our How to Use a 1031 Exchange guide and our Complete 1031 Exchange Guide.

Interactive 1031 Exchange Calculator

Use the calculator below to compare a taxable sale against a 1031 exchange. Enter the relinquished property details (original purchase price, capital improvements, years owned, depreciation claimed, sale price, selling costs, and existing mortgage balance), the applicable tax parameters (federal capital gains rate, depreciation recapture rate, state tax rate, and whether NIIT applies), and optional replacement property information if a partial exchange is being considered. The calculator will display two columns showing estimated taxes on a hypothetical straight sale versus estimated total taxes potentially deferred through a 1031 exchange, including any boot or recognized gain from a partial exchange. Results are illustrative only — actual tax outcomes depend on individual circumstances.

Understanding the Numbers: What This Calculator Shows

Capital Gains Tax (Federal)

Long-term capital gains on assets held longer than one year are generally taxed at preferential federal rates. For 2026, three brackets generally apply based on taxable income.

Single filers generally pay 0% on gains up to $49,450, 15% on gains from $49,451 to $545,500, and 20% on gains above $545,500. Married couples filing jointly generally pay 0% up to $98,900, 15% from $98,901 to $613,700, and 20% above $613,700.

Most investment property sellers with significant gains fall into the 15% or 20% bracket. A 1031 exchange generally defers the entire federal capital gains tax by rolling the gain into the replacement property. The gain is generally embedded in the replacement property's lower tax basis and may become taxable when that property is eventually sold without another exchange.

Depreciation Recapture Tax

Under current tax law, owners of investment property are generally required to depreciate the building value over its useful life. Residential rental property is depreciated on a straight-line basis over 27.5 years. Commercial property follows a 39-year schedule.

When the property is sold, those depreciation deductions are generally recaptured as taxable income under Section 1250. This unrecaptured Section 1250 gain is generally taxed at a maximum rate of 25%, regardless of the investor's ordinary income bracket.

A 1031 exchange generally defers this tax along with the capital gains tax. The depreciation schedule generally carries over to the replacement property, and the remaining recovery period typically continues from where it left off.

Net Investment Income Tax (NIIT)

The net investment income tax under IRC Section 1411 may add 3.8% to gains from investment property sales for higher-income taxpayers. The tax generally applies when modified adjusted gross income exceeds $200,000 for single filers or $250,000 for married couples filing jointly. These thresholds are not indexed for inflation and have remained unchanged since the tax took effect in 2013.

Capital gains from selling investment property are generally considered net investment income. For an investor above the income threshold, the NIIT may add a meaningful layer on top of federal capital gains tax and depreciation recapture. A 1031 exchange generally defers this tax because the gain is not recognized in the year of the exchange.

State Capital Gains Tax

Most states tax capital gains as ordinary income. Rates range from 0% in states with no income tax to 13.3% in California. Eight states currently impose no state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming. Investors in these states may generally avoid this layer of taxation, though state tax laws are subject to change.

Some states have clawback provisions that apply when the replacement property is located in a different state. California, Oregon, Montana, and Massachusetts are among the states that track deferred gains and may recapture the state-attributed portion when the replacement property is eventually sold. California is generally known for maintaining records of deferred gains across subsequent exchanges.

A 1031 exchange generally defers state capital gains tax, though state-specific rules may apply. Investors exchanging property across state lines may want to consult a tax professional familiar with the relevant jurisdictions.

Worked Example: 1031 Exchange vs. Taxable Sale

In this hypothetical example, consider an investor in California who has held a residential rental property for 10 years and is now selling it.

Property details:

• Original purchase price: $400,000
• Capital improvements over 10 years: $50,000
• Depreciation claimed: approximately $145,000 (10 years of straight-line depreciation at $14,545 per year on $400,000 of building value over a 27.5-year recovery period)
• Adjusted basis: $400,000 + $50,000 − $145,000 = $305,000
• Sale price: $750,000
• Selling costs (7%): $52,500
• Net sale proceeds: $697,500
• Total taxable gain: $697,500 − $305,000 = $392,500

Estimated tax liability without a 1031 exchange (hypothetical):

In this hypothetical, the gain breaks into two components for federal tax purposes. The appreciation above the original cost basis (before depreciation) may be taxed as a long-term capital gain. The depreciation previously claimed is generally recaptured at a separate rate under Section 1250. State tax and NIIT may apply to the full taxable gain. Actual tax liability depends on the taxpayer's specific circumstances and applicable law at the time of sale.

• Estimated federal capital gains tax on appreciation: ($697,500 − $450,000) = $247,500 at 20% = $49,500
• Estimated depreciation recapture tax: $145,000 at 25% = $36,250
• Estimated California state income tax: $392,500 at 13.3% = $52,203
• Estimated net investment income tax: $392,500 at 3.8% = $14,915
• Total estimated tax (hypothetical): $152,868

In this hypothetical, the combined effective tax rate on the $392,500 gain is approximately 38.9%. In a high-tax state like California, the various layers of taxation may consume a significant share of the profit from a sale.

With a 1031 exchange (hypothetical — full reinvestment into replacement property at $750,000 or more):

In this hypothetical, all four tax components may potentially be deferred. The estimated $49,500 in federal capital gains tax, $36,250 in depreciation recapture, $52,203 in state tax, and $14,915 in NIIT could remain invested in real estate rather than paid to taxing authorities. The investor's full $697,500 in net proceeds (after selling costs) may continue working as equity in the replacement property. Actual results depend on the taxpayer's specific situation, applicable law, and whether all exchange requirements are satisfied.

The replacement property generally inherits the deferred gain and the depreciation schedule from the relinquished property. These taxes are deferred, not eliminated. Many investors continue exchanging indefinitely, and heirs who inherit the property may receive a stepped-up basis at death under IRC Section 1014 under current law, which may potentially eliminate the deferred gain. The stepped-up basis provision has been the subject of legislative proposals to modify or eliminate it; investors should consult a qualified estate planning professional.

Boot and Partial 1031 Exchanges: When the Investor Doesn't Fully Reinvest

What Is Boot in a 1031 Exchange?

Boot refers to any value received in a 1031 exchange that is not like-kind property. The two most common forms are cash boot and mortgage boot.

Cash boot occurs when the investor does not reinvest all of the net sale proceeds into the replacement property. Any cash retained from the transaction is generally treated as taxable boot. Mortgage boot (also called debt relief boot) occurs when the investor takes on less debt on the replacement property than existed on the relinquished property. The reduction in debt is generally treated as value received.

Boot generally triggers recognized gain. The taxable amount is the lesser of the boot received or the total realized gain. In other words, boot is generally taxed at the applicable capital gains, depreciation recapture, state, and NIIT rates, but only up to the amount of the underlying gain.

How to Calculate Boot

Cash boot equals the net sale proceeds minus the cash actually reinvested into the replacement property. Mortgage boot equals the mortgage balance on the relinquished property minus the mortgage on the replacement property, when the new mortgage is smaller.

Total boot is the sum of cash boot and mortgage boot, but only when the net figure is positive. An investor can offset cash boot with additional mortgage and vice versa. For example, taking $50,000 in cash but increasing the mortgage by $50,000 or more would result in zero net boot.

Partial Exchange Example (Hypothetical)

Using the same hypothetical scenario from the worked example above, suppose the investor sells for $750,000 but purchases a replacement property for only $600,000, keeping $97,500 in cash. Actual results will vary based on the taxpayer's specific circumstances.

The $97,500 in cash retained is generally treated as boot and may trigger recognized gain. That portion of the gain may be taxed at the applicable rates, allocated proportionally across federal capital gains, depreciation recapture, state tax, and NIIT. The remaining $295,000 in deferred gain may stay embedded in the replacement property's basis.

The calculator handles this automatically. When the replacement property value entered is below the net sale price, the calculator computes boot and shows the resulting tax on the recognized portion alongside the amount still deferred.

To avoid all boot, three conditions are generally required: the replacement property is generally required to cost at least as much as the net sale price, the investor is generally required to reinvest all net equity without taking any cash out, and the debt on the replacement property is generally required to equal or exceed the debt on the relinquished property.

Reinvestment Requirements: Avoiding Taxable Boot

Three Rules to Defer All Gain

Complete tax deferral in a 1031 exchange generally requires meeting three conditions simultaneously.

First, the replacement property's purchase price is generally required to be equal to or greater than the net sale price of the relinquished property. Second, all net equity (the cash proceeds remaining after selling costs and debt payoff) is generally required to be reinvested into the replacement property. No cash should generally be withdrawn from the exchange. Third, the debt on the replacement property is generally required to equal or exceed the debt that existed on the relinquished property. If the new mortgage is smaller, the investor may make up the difference by contributing additional cash at closing.

Failing any one of these conditions generally creates boot, which may trigger recognized gain on the shortfall.

New Basis Calculation

The replacement property's tax basis is generally not its purchase price. Instead, it typically carries over from the relinquished property. The formula is: adjusted basis of the relinquished property, plus any boot paid (additional cash invested), minus any boot received.

This carryover basis means the deferred gain is embedded in the new property. When the replacement property is eventually sold without another 1031 exchange, the full deferred gain generally becomes taxable. Depreciation on the carryover basis generally continues over the remaining recovery period from the relinquished property. Any excess basis (the difference between the replacement property's purchase price and the carryover basis) generally begins a new depreciation schedule.

Why Basis Matters for Future Planning

A lower tax basis generally means a higher taxable gain if the property is ever sold outright. Investors who complete multiple 1031 exchanges accumulate increasingly large deferred gains over time.

Under current tax law, serial 1031 exchanges may allow continual deferral throughout an investor's lifetime. This is sometimes called the “swap till you drop” strategy. At death, heirs may receive a stepped-up basis under IRC Section 1014, equal to the property's fair market value at the date of death. This stepped-up basis may potentially eliminate all deferred capital gains and depreciation recapture in a single step. For investors with a long-term wealth transfer perspective, this combination of lifetime deferral and basis step-up at death is one of the more commonly discussed tax planning strategies available in real estate. This strategy depends on current tax law remaining in effect. The stepped-up basis provision under IRC Section 1014 has been the subject of legislative proposals to modify or eliminate it.

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